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Fed: How sensitive is the economy to large interest rate increases? Evidence from the taper tantrum
https://www.federalreserve.gov/econres/feds/files/2022085pap.pdf
The Myth of Central Bank Independence
http://d.repec.org/n?u=RePEc:ajw:wpaper:06813&r=mon
The Effect of Pension Wealth on Employment
See important disclaimers at the bottom of the page.
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Supply chains are back to normal, and the price of transporting a 40-feet container from China to the US West Coast has declined from $20,000 in September 2021 to $1,382 today, see chart below. This normalization in transportation costs is a significant drag on goods inflation over the coming months. Services inflation will be driven lower by declining rent inflation. Wage inflation remains elevated, but we have just had an extended period where consumer price inflation was higher than wage inflation. So companies and profit margins will also be able to deal with a period where wage inflation is higher than consumer price inflation. The bottom line is that the Fed and the consensus are right to expect a decline in inflation as we go through 2023. And new Fed research here shows that inflation persistence is less of a worry.
Source: Freightos, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Calculations from the Fed show that the contribution from demand to inflation has been shrinking in recent months, see chart below and here. The implication is that monetary policy is sufficiently tight and the Fed is quickly approaching the peak in the Fed funds rate. In other words, these Fed estimates show that the cumulative Fed hikes seen so far are enough to have successfully cooled down demand inflation, and the tentative conclusion is that no additional demand destruction is needed.
Source: Federal Reserve Bank of San Francisco, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Labor force participation rates are back at pre-pandemic levels for prime age workers but still below normal for people aged +55 and below 24 years old, see chart below.
Source: BLS, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Occupancy rates at Las Vegas hotels are now back to pre-pandemic levels, driven by strong employment growth, solid wage growth, and high household savings, see chart below.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The Bank of Japan owns almost 50% of all Japanese government bonds outstanding, see chart below.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The slowdown in immigration growth in recent years has implications for the potential growth rate of the US economy and it is contributing to the ongoing tightness in the labor market, see chart below.
Source: Census Bureau, Apollo Chief Economist. NoteNet international migration for the United States includes the international migration of both native and foreign-born populations. Specifically, it includes: (a) the net international migration of the foreign born, (b) the net migration between the United States and Puerto Rico (c) the net migration of natives to and from the United States, and (d) the net movement of the Armed Forces population between the United States and overseas See important disclaimers at the bottom of the page.
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Delinquency rates on auto loans and credit cards are starting to move higher, in particular in lower income zip-codes (as defined by the Fed), see charts below.
Source: New York Fed Consumer Credit Panel / Equifax; IRS SOI, Apollo Chief Economist 
Source: New York Fed Consumer Credit Panel / Equifax; IRS SOI, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The consensus sees a 90% probability of a recession in the UK and 80% in Europe, and 65% in the US, which continues to point to lower rates in the long end of the curve in 2023.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Fed hikes are cooling down the economy and the interest rate-sensitive components of GDP are slowing down (housing, autos, and capex spending), see chart below.
Source: NAR, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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