Topic · Core Finance & Asset Classes
← All topicsMacro & Economics
55 articles · 8 checkpoints · 31 deeper reads · 16 reference notes
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Markets do not trade the economy, they trade the difference between the economy and what everyone already assumed. This page covers the release calendar, how a surprise is measured, and why an in-line print can still move the ten-year fifteen basis points.
CPI and PCE both try to answer "how much more expensive is life than last year," but they weight the same economy differently and disagree by enough to move Fed policy and trillions in bond payouts.
The interest rate printed on your savings account is not what you actually earn, inflation quietly eats a chunk of it, and the rate left over after that bite is the real rate, the one that actually determines whether you're getting richer.
Economies don't grow in a straight line, they alternate between expansion and contraction in a recurring, if irregular, pattern, and knowing which phase you're in shapes almost every macro trading and asset allocation decision.
In a normal recession, weak demand fixes itself as rates fall and borrowing resumes. In a balance sheet recession, households and firms are so underwater on debt that they cut spending to pay it down even at near-zero rates, and everyone doing this at once shrinks the economy faster than debt falls.
When a central bank lets its bond holdings shrink instead of reinvesting the proceeds, bank reserves in the system fall too, and the closer reserves get to the minimum banks actually need, the more fragile short-term funding markets become.
Recessions rarely begin with a shortage of good ideas. They begin when lenders stop saying yes. This page covers how bank credit standards swing, how to read the Fed's loan officer survey, and why a small loss of bank capital removes a very large amount of lending.
A "eurodollar" is a dollar deposit held at a bank outside the United States, and the network of banks lending and relending those deposits to each other creates dollar credit that the Federal Reserve does not directly control.
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