Boring FOMC meetings & spicy markets

Fireworks won't be caused by the Fed anymore.

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Confirmation bias is a doozy. As rates analysts, it’s our job to flag curve inversions as recession indicators up to three years in advance. Now that we’re about 18 months into the current instance of 2s10s inversion, it’s almost impossible to unsee the end-cycle dynamics in the data, such as contractionary US manufacturing, German recession, and Chinese monetary easing. Interestingly, policymakers, instead of having trouble escaping negative economic news, are quite comfortable in their position. This sets up for the next few months of Fed and ECB inaction, while markets once again regain their form as discounting mechanisms. Let’s just say summer is over.

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Tax receipts

Federal tax receipts are in severe contraction. This chart stood out to us yesterday—notice the shaded regions are recessions, each of the last three of which corresponded with similar declines: