Powell Q&A

✅Notes that a downside risk in GDP was a revision to GDI
✨Gross Domestic Income (GDI) assesses economic activity based on income.
✅Instead, GDI was revised higher
✅GDI grew at a 3.4% rate, a significant upward revision from the 1.3% rate originally estimated.
🤷‍♂️The change means that consumers will have more money to spend, keeping the economy strong.
✅Fed not in a hurry to cut rates quickly, will be guided by data
✅Rate cut process will play out ‘over some time’ with no need to go fast
✅Fed will take everything into account at Nov meeting
✅If economy evolves as expected, it will mean two more cuts this year, totalling 50 bps
✅As long as inflation in new leases is relatively low, it will eventually show up but it looks like it will take longer than we thought
✅The half-point cut in Sept was a reflection in inflation’s return to 2%
🤷‍♂️This is important, it implies the Fed will be more hawkish. The GDI numbers were revised last week, after the Fed.
🤷‍♂️The fear was that GDP would be revised down to GDI, instead it was GDI revised up to GDP.
🤷‍♂️That means more money in consumer pockets and stronger spending.

China

✅China has announced its most significant economic stimulus since 2008, just before the 75th anniversary of the People’s Republic.
✅The People’s Bank of China (PBoC) cut interest rates by 30bps from 2.3% to 2%, lowered reserve requirements, and introduced measures to boost the stock market.
✅New tools, such as stock buybacks funded by refinancing and bolstering institutional investor balance sheets, were introduced.
✅Chinese stocks surged, with investors globally taking notice, including American hedge fund managers.
✅An additional 2 trillion yuan of bonds will be issued equivalent to about 1.5% of China’s GDP, targeting local government debt and boosting household spending.
✅Half will prevent local government defaults, and the other half will stimulate household and firm spending.
✅With the other half measures include a “cash for clunkers” scheme and a child allowance to encourage family growth.
✅Families with additional children will receive a monthly handout of 800 yuan per child, excluding the firstborn, aiming to stimulate growth and household spending.
✅Chinese stocks saw their best performance in 16 years, rising more than 15% in one week, with global investors taking note.
✅While significant, the stimulus measures are smaller than the 2008 crisis-era package, which ultimately grew to 9.5 trillion yuan (27% of 2009 GDP).