MacroVoices #362 Jeff Snider: Soft Landing or Crash Landing?
Jeff Snider argues that markets are pricing in a recession and forced Fed rate cuts despite officials claiming success with a soft landing. His analysis of curve inversions, economic data, and oil futures suggests the economy is heading toward contraction rather than the soft landing many believe has been achieved.
Summary
In this February 2023 interview, Eurodollar University founder Jeff Snider challenges the prevailing narrative that the Federal Reserve has successfully engineered a soft landing. While acknowledging that consumer price increases have begun to decelerate, Snider argues this reflects economic weakness rather than successful monetary policy. He points to unprecedented inversions in yield curves across multiple markets - German bunds, US Treasuries, and Eurodollar futures - all suggesting markets expect significant rate cuts ahead, contrary to Fed Chair Powell's statements that he doesn't anticipate cuts in 2023. Snider examines economic data showing divergent signals: while headline employment numbers appear strong, household survey data and full-time employment trends follow historical recession patterns. He highlights that the shift in consumer price behavior began around June-July 2022, coinciding with major changes in yield curves globally, suggesting the economy was already weakening before Fed policy could take effect. On Europe, despite claims of avoiding worst-case energy scenarios, German economic data shows severe contractions in retail sales and trade by December 2022. Regarding China's reopening, Snider argues markets are pricing in disappointment rather than the expected economic boost, as global recession pressures may outweigh China's domestic recovery. He finds the WTI oil futures curve particularly telling - showing contango despite historically low inventory levels, which should create steep backwardation. This suggests the market fears demand destruction more than supply shortages. Snider traces current deglobalization trends to monetary conditions and argues that without genuine monetary excess (as opposed to government spending shifts), the current situation resembles the early 1970s when recession was expected to cure inflation pressures.
Key Insights
- Snider argues that consumer price declines began in June-July 2022 due to economic weakness rather than Fed policy effectiveness, as rate hikes typically take longer to impact prices
- German bond curves show unprecedented inversion levels despite Germany being traditionally the most stable market, indicating severe hedging demand for economic protection
- The household survey shows full-time employment following historical recession patterns since April 2022, contrasting sharply with establishment survey data showing continued job growth
- Markets are pricing Eurodollar futures and Treasury curves for significant rate cuts in 2023 despite Powell stating he doesn't expect to cut rates this year
- WTI oil futures show persistent contango despite generationally low inventory levels, which Snider argues should create steep backwardation and represents a major warning signal
- German economic data shows massive contractions in retail sales and trade by December 2022, suggesting Europe hasn't avoided recession despite avoiding worst-case energy scenarios
- Snider contends that China's reopening is being met with market disappointment rather than optimism, as global recession may impact China more than China impacts global recovery
- The near-term forward spread that Powell previously cited as healthy has now collapsed to worse levels than 2006-2007, contradicting Fed optimism
- Snider argues the current situation lacks the monetary excess characteristic of 1970s inflation, making the price increases more likely to be cured by recession
- ISM manufacturing data shows new orders in 'nasty recession territory' which will spill over globally due to interconnected supply chains
- Snider claims that deglobalization trends driven by monetary conditions are causing countries to focus inward and escalate minor frictions into major conflicts
- The shift from expansion to contraction typically involves a multi-month process where businesses first freeze hiring and cut hours before major layoffs, which Snider sees occurring now
Topics
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