September 15th, we held our September research briefing, featuring guest speakers John Fagan and Brendan Walsh, co-founders of Markets Policy Partners (MPP). MPP is a Washington, D.C.-based independent advisory service that informs clients on matters at the intersection of markets and policy, and in the public sector.

Click here for a video of the research call

MPP’s presentation addressed the following topics:

A Less Reactionary Federal Reserve [5:15]

MPP said the FOMC will hike short-term interest 75bps again at the upcoming September meeting. However, further hikes will be less reactionary to economic releases – such as CPI – and be of reduced magnitude. Look for a more balanced Fed. [6:14]

Future Federal Reserve policy actions will not be 75bps. Expect lower increment hikes. [7:05]

The Federal Reserve is not pivoting or changing the trajectory of interest rates but will provide steady messaging and possibly a “dovish surprise.” [7:30]

The markets can expect interest rate hikes through the end of the year, but this will set the stage for improved upside for the US dollar, US Treasuries, and equities. [8:00]

The FOMC expects slower growth, modest inflation, and engage in a “fighting retreat” policy. That is, MPP forecasts a 50bps hike later this fall and a winter 25bps move, concluding its actions. This would allow asset classes to enjoy a “window of relief” going into year-end. [8:48]

Expect the Federal Reserve and other Central banks “very reluctant” to cut interest rates in 2023. [10:00]

The FOMC must keep inflation at bay for an extended amount of time and win its “war of attrition” against the strong US consumer in 2023. Expect a very challenging first half in 2023.  [10:25]

The Devil is in the Details [12:30]

While headline August CPI remains high, certain subcomponents measured in real-time by the New York Federal Reserve and the University of Michigan, such as airfare, rent, and housing, are showing declines. Supply chain issues are also easing. [12:45]

Federal Reserve messaging will remain tough, even as MPP expects size reductions in future rate hikes. [15:38]

The Central Bank must manage inflation expectations properly. {17:15]

Global central banks and the Federal Reserve will resume a more coordinated campaign of curbing inflation moving in the third and fourth quarters. [19:28]

The FOMC must watch the strength of the US dollar. [19:50]

The asset markets can expect a “significant” transition process moving ahead. [22:10]

Geopolitical Risk Remains in Europe but not Asia [23:15]

The Russia/Ukraine situation remains “extremely fluid.” [23:23]

Vladimir Putin remains unopposed to his Ukrainian policy and the Russian military will feed the “meat grinder” in keeping men and material supplied and fighting. There are no signs of any significant military or political retreat. [23:43]

Russia will continue to use energy as a weapon amid continued global criticism. [25:05]

The Chinese government will not actively antagonize Taiwan. The island nation is no longer a global flashpoint. [26:00]

Premier Xi will get reappointed to a third term and keep the current “zero tolerance” COVID policy in effect, as well as the ongoing economic stimulus. Expect no new policies from Beijing but rather enough to keep the country afloat. [26:30]]

MPP expects the Republicans to win the House of Representatives but not the Senate. Expect the parties to be aligned on legislating “Big Tech” companies and China – with the latter seeing policy refinement on tariffs. [29:30]

SEC Will be the Crypto Police [32:13]

The crypto regulatory push will come from the SEC. The SEC’s view that tokens are securities will prevail. [32:25]

The SEC will have a long road proving its case to Congress but will win. Expect a large amount of lobbying to take place but the outcome of regulation is certain. [32:50]

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For questions or to learn more about Markets Policy Partners, please reach out to [email protected] for more updates and insights.