Delivering Global Macro Investment Insights

DeSaque Macro Research

DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the view to delivering global macro investment insights aimed at providing new ideas to clients.

Said DeSaque has over 26 years of experience working as a professional economist in financial services. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist at Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he eventually became Head of the London Economics Department.

Said takes a very keen interest in international relations, along with their implications for economic development. His research interests include the economic transformation of China and its implications for global capital markets, particularly in the United States. He is a member of Chatham House in London.

The US economy and capital markets have historically been Said’s main focus of attention. He frequently presents his views to institutional investors in diverse geographic locations. In recent years, Said has also been carefully monitoring economic developments in Asia, particularly China and Japan.

Fed Policy Certainty: Investors and President Trump Make Impossible Demands

Up, Up and Downnnnnnnn… Why This Crisis Is About Finance (Again) And Not About The Economy

Global Economist, DeSaque Macro Research

Said Desaque

Global Economist

Macroeconomics

Elevated uncertainty has raised downside risks to the US economy, thereby forcing Fed Chair Powell to undertake an insurance policy rate cut later this month to mitigate potential slowdown. The most plausible baseline scenario for Fed policy for 2019 H2 is two 25 basis points reductions in the federal funds rate, where the second cut is entirely data dependent.
The anticipated reduction in the federal funds rate later this month should be regarded as a reversal of last December's policy mistake when the Federal Open Market Committee (FOMC) raised the federal funds rate and not as a signal of impending recession. It is doubtful the FOMC wants to replicate the three 25 basis points reductions that were enacted in 1995/6 to produce a soft-landing due to fears of stoking excessive risk-taking in US financial markets.
The looming cut in the federal funds rate has also raised the idea that the Phillips Curve is no longer relevant in Fed policy conduct, partly due to a perceived lack of conviction amongst FOMC members' estimates for the natural rate of unemployment. Fed policy is, however, responding to a looming negative shock from the trade dispute with China, while the Phillips Curve has not been jettisoned as part of the framework guiding US monetary policy.
Financial markets remain too fixated on the US-China trade dispute, thereby raising the risks of tighter financial conditions whenever threats of tariff escalation increase, which, in turn, would be detrimental to the real economy. The FOMC has, however, recognised these risks in 2019 by gradually tilting towards their current dovish stance.
US bank lending standards, having briefly tightened in 2019 Q1, have returned to an easing posture that should be supportive for continued economic growth. Pressure in debt markets has also eased during 2019, although high yield US corporate bond spreads have narrowed less than investment grade bonds, partly due to lower liquidity in the former's segment of the corporate bond universe.

Elevated uncertainty has raised downside risks to the US economy, thereby forcing Fed Chair Powell to undertake an insurance policy rate cut later this month to mitigate potential slowdown. The most plausible baseline scenario for Fed policy for 2019 H2 is two 25 basis points reductions in the federal funds rate, where the second cut is entirely data dependent.
The anticipated reduction in the federal funds rate later this month should be regarded as a reversal of last December's policy mistake when the Federal Open Market Committee (FOMC) raised the federal funds rate and not as a signal of impending recession. It is doubtful the FOMC wants to replicate the three 25 basis points reductions that were enacted in 1995/6 to produce a soft-landing due to fears of stoking excessive risk-taking in US financial markets.
The looming cut in the federal funds rate has also raised the idea that the Phillips Curve is no longer relevant in Fed policy conduct, partly due to a perceived lack of conviction amongst FOMC members' estimates for the natural rate of unemployment. Fed policy is, however, responding to a looming negative shock from the trade dispute with China, while the Phillips Curve has not been jettisoned as part of the framework guiding US monetary policy.
Financial markets remain too fixated on the US-China trade dispute, thereby raising the risks of tighter financial conditions whenever threats of tariff escalation increase, which, in turn, would be detrimental to the real economy. The FOMC has, however, recognised these risks in 2019 by gradually tilting towards their current dovish stance.
US bank lending standards, having briefly tightened in 2019 Q1, have returned to an easing posture that should be supportive for continued economic growth. Pressure in debt markets has also eased during 2019, although high yield US corporate bond spreads have narrowed less than investment grade bonds, partly due to lower liquidity in the former's segment of the corporate bond universe.

Fed Prepares for Insurance Rate Cut, But Repeat of 1995-6 Conduct Not Guaranteed