Market Leadership

The Federal Reserve's See-sawing Balance of Risks

February 15, 2023 - 2 minutes 30 seconds

A balance scale on the desk of a businessperson

The recent series of major US economic events has left the markets spinning in circles, as the focus this year has turned to the end of the Federal Reserve's tightening cycle. Jan Groen, our Chief US Macro Strategist, joined TD Securities in the second half of 2022 from the Federal Reserve Bank of New York where he was an Economic Research Advisor. His knack for extracting clever and concise signals from a data-rich macroeconomic environment and mapping it clearly into implications for the US economy and markets was followed closely by market participants. Now with TD Securities, Jan's guidance around recent events continues to be supported by evolving market data.

Forecasting FOMC rate hikes

Following the Federal Reserve decision in February, when the Fed slowed the pace of hikes down to 25bps, Jan stuck with his call for the Fed to deliver two more 25bps rate hikes, in March and in May. However, while he had previously seen the risks as tilted towards further hikes beyond May, after Chair Powell failed to push back against a more dovish market view, he felt that the risks had become more balanced.

At the same time, even more than before, upcoming data releases could sway the balance of risks in either direction as the Chair deemphasized the December "dot plot" as a guide for the Fed's outlook. Markets took the decision as more unambiguously dovish though, focusing not only on the end of the Fed's hiking cycle, but how soon we might expect to see rate cuts.

New data supports the forecast

Just two days later, a blockbuster US payrolls report reaffirmed Jan's view that the Fed still has at least a couple more rate hikes to come and won't be thinking about rate cuts anytime soon. Although wage growth did ease up a bit, Jan noted that it's still above levels that would be consistent with the Fed's 2% inflation target, and that excess labour demand persists. So combined with the ISM services index jumping back into expansionary territory, Jan and the US team cannot foresee the Fed pausing before the May meeting.

There's more to come

Jan heads US economics research and analysis for TD Securities in New York, working closely with US macro strategist Oscar Muñoz. The team covers US and global macroeconomic trends, with a focus on formulating views on the Federal Reserve's rate setting policy, macro data forecasting, and quantifying underlying economic trends. Jan has been watching the relationship between wage and inflation trends particularly closely, and combined with Oscar's #1 ranking in Bloomberg for US monthly CPI forecasts, will have investors and colleagues leaning on Jan's team for their guidance around the upcoming turning point from the Fed.

Subscribing Clients can access full reports: February FOMC, US Payrolls Report and Wage Growth and Inflation Expectations on the TD Securities Market Alpha Portal

Disclaimer

This material is intended to provide commentary on securities markets discussed herein.

Not Advice: The information contained in this material is for informational purposes only and is not intended to provide professional, investment or any other type of advice or recommendation, or to create a fiduciary relationship. Neither TD Securities (USA) LLC (“TD Securities USA”) nor any of its affiliates (collectively, “TD”) makes any representation or warranty, express or implied, regarding the accuracy, reliability, completeness, appropriateness or sufficiency for any purpose of any information included in this material. Certain information may have been provided by third-party sources and, while believed to be reliable, has not been independently verified by TD, and its accuracy or completeness cannot be guaranteed. You should not make an investment decision in reliance on this material, which is intended to provide only brief comments on the topics addressed and is based on information that is likely to change without notice. Further, this material does not include risk factors or other material information necessary to make an investment decision and does not take into account your investment objectives or financial condition. You should obtain your own investment, tax, accounting, and legal advice, as appropriate, in order to assist them in deciding whether to enter into any securities transaction.

Not Securities or Derivatives Research: This material has not been produced, reviewed or approved by TD’s securities or derivatives research departments, and is not subject to the independence and disclosure standards applicable to securities and derivatives research reports. The views of the author may differ from others at TD, including TD securities or derivatives research analysts.

Not Independent: The views expressed in this material may not be independent of the interests of TD. TD may engage in conflicting activities, including principal trading before or after posting this material, market making, lending, or the provision of investment banking or other services involving issuers and securities referred to in this material. TD may have a financial interest in the securities discussed in this content, including, without limitation, an option, right, warrant, future, long or short position in the security.

Not An Offer or Solicitation: Nothing contained in this material is, or should be construed as, an offer, a solicitation of an offer or an invitation to buy or sell any security, and it is not intended for distribution in any jurisdiction where such distribution would be contrary to law.

Risk of Loss: Securities transactions involve risk of loss and are subject to the risks of fluctuating prices and the uncertainty of dividends, rates of return and yield. You should weigh potential benefits against the risks. Past performance is no indicator of future performance and the materials are not intended to forecast or predict future events.

Not a Valuation: This material is not an official valuation of any security or transaction mentioned herein. Any pricing information provided is indicative only and does not reflect a level at which TD may be prepared to execute a trade; nor is it intended to demonstrate actual results that may be achieved by any transaction.

Jan Groen
Chief U.S. Macro Strategist, TD Securities

Biography

Jan is the Chief U.S. Macro Strategist and heads TD Securities' U.S. economics research in NYC. His research and analysis cover U.S. and global macroeconomic trends, with a focus on formulating views on the Federal Reserve's rate setting policy, macro data forecasting, and quantifying underlying economic trends. Jan joined TD Securities in NYC in 2022 from the Federal Reserve Bank of New York where he was an Economic Research Advisor. During his 14-year career at the New York Fed he led the modelling of developments in global financial markets and of global drivers of U.S. inflation and economic growth. Before the New York Fed, Jan held several senior economist positions at the Bank of England, where he was amongst others the lead on the statistical macroeconomic forecast effort, and he was a Research Fellow at the Dutch Central Bank. Jan holds a PhD in economics from the Tinbergen Institute at the Erasmus University Rotterdam.