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Not Truly Stagflationary At This Stage

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Citi’s U.S. economic surprise index has registered the deepest negative print seen since early ’23, with the mix of disappointing economic activity data and generally firmer-than-expected inflation readings filtering in.

  • A couple of rounds of softer-than-expected labour market readings have also been seen over the last 10 days.
  • While the numbers aren’t typically recession-like (the U.S. economy has been more resilient than most people imagined), they will be promoting the stagflation discussions that Chair Powell was so keen to play down at the most recent FOMC.
  • Linked conversations surrounding financial repression and fiscal dominance have also been noted.
  • This will be factoring into the higher for longer rate narrative and limiting receiver-side moves in FOMC-dated OIS, with the market probably eying the potential for a ‘stagflation-lite’ outcome at present.
  • FOMC-dated OIS last shows ~42bp of ’24 cuts vs. the recent range of ~26bp (late April) to ~55bp (post-payrolls).
Fig. 1: Citi U.S. Economic Surprise Index

Source: MNI - Market News/Bloomberg/Citi

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Citi’s U.S. economic surprise index has registered the deepest negative print seen since early ’23, with the mix of disappointing economic activity data and generally firmer-than-expected inflation readings filtering in.

  • A couple of rounds of softer-than-expected labour market readings have also been seen over the last 10 days.
  • While the numbers aren’t typically recession-like (the U.S. economy has been more resilient than most people imagined), they will be promoting the stagflation discussions that Chair Powell was so keen to play down at the most recent FOMC.
  • Linked conversations surrounding financial repression and fiscal dominance have also been noted.
  • This will be factoring into the higher for longer rate narrative and limiting receiver-side moves in FOMC-dated OIS, with the market probably eying the potential for a ‘stagflation-lite’ outcome at present.
  • FOMC-dated OIS last shows ~42bp of ’24 cuts vs. the recent range of ~26bp (late April) to ~55bp (post-payrolls).
Fig. 1: Citi U.S. Economic Surprise Index

Source: MNI - Market News/Bloomberg/Citi