As of 10:18 am AST, the dollar continues its weakening ways in light of job losses …

PairsFederal Reserve as of 4 January 2021OANDA as of 4 January 2021OANDA as of 8 January 2021 10:20 am AST
Sources: Federal Reserve, OANDA
RatesFederal Reserve as of 4 January 2021Bloomberg as of 8 January 2021 10:51 am AST
Federal Funds Rate0.090.08
Prime Rate3.253.25
3-month Treasury0.090.08
2-year Treasury0.110.14
10-year Treasury0.931.10
30-year Treasury1.661.87
Source: Bloomberg

Legal/Regulatory/Political Events Impacting Foreign Exchange Markets

An expected dire jobs report

The U.S. Department of Labor today reported that non-farm payroll employment fell by 140,000 jobs in December 2020. The unemployment rate remained at 6.7%, the same rate as reported in December 2020. Significant losses were in the retail and hospitality sectors, according to the Labor Department. Approximately 10.7 million people are out of work.

Consumers’ Spending Expectations Rise Despite Flat Income and Earning Expectations

Source: Federal Reserve Bank of New York


NEW YORK—The Federal Reserve Bank of New York’s Center for Microeconomic Data released the November 2020 Survey of Consumer Expectations, which shows that despite flat income and earnings growth expectations, households’ year-ahead spending growth expectations rose sharply in November to 3.7%, the highest level recorded in more than 4 years. Labor expectations were mixed with deteriorating expectations about the unemployment rate and improving expectations about job security. After returning to their pre-COVID-19 levels in recent months, home price expectations recorded their first decline since April 2020. Median inflation expectations increased at both the short and medium-term horizons, while uncertainty and disagreement about future inflation remain elevated.

The main findings from the November 2020 Survey are:


  • Median inflation expectations increased 0.2 percentage point in November to 3.0% at the one-year horizon and increased 0.1 percentage point to 2.8% at the three-year horizon. The increase in the short-term measure was driven mostly by respondents who are younger (below the age of 60), more educated (bachelor’s degree or higher) and with higher household income (over $100,000). Our measures of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) remain substantially above their pre-COVID-19 level at both horizons.
  • Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes— remained unchanged at the short-term horizon and increased at the medium-term horizon. Both measures are elevated relative to pre-COVID-19 readings.
  • Median year-ahead home price change expectations decreased 0.1 percentage point to 3.0% in November. This is the first monthly decline in the series since April 2020 when it reached its lowest level of 0%. The decline was recorded in all Census regions except the Northeast.
  • The median one-year ahead expected change in the cost of a college education and in the price of gasoline both increased by 0.3 percentage points to 5.2%. In contrast, the median expected change in the cost of medical care declined sharply, from 9.1% to 7.1%, slightly below its 2019 average of 7.2%. Expected changes in food prices and in the cost of rent declined by 0.1 and 0.2 percentage point to 5.1% and 5.5%, respectively.

Labor Market

  • Median one-year ahead expected earnings growth remained flat in November at 2.0%, below its 2019 average level of 2.3%. This is the fifth consecutive month that the series has remained unchanged.
  • Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—increased for the first time since July 2020, from 35.4% in October to 40.1% in November.
  • The mean perceived probability of losing one’s job in the next 12 months decreased for the third consecutive month from 15.5% in October to 14.6% in November, still slightly above its 2019 average of 14.3%. The decrease was more pronounced among respondents above the age of 60 and without a college education. The mean probability of leaving one’s job voluntarily in the next 12 months decreased by 1.3 percentage point to 16.6% in November, a new series low. The decrease was driven mostly by respondents above the age of 60.
  • The mean perceived probability of finding a job (if one’s current job was lost) increased from 46.9% in October to 47.9% in November, but remains substantially below its 2019 average of 59.8%.

Household Finance

  • The median expected household income growth stayed flat in November at 2.1%, well below its 2019 average of 2.8%.
  • Median household spending growth expectations rebounded sharply in November, increasing 0.6 percentage points to 3.7%, its highest level since July 2016. The increase was driven mostly by those with household incomes below $50,000.
  • Perceptions of credit access compared to a year ago remained essentially unchanged in November. In contrast, expectations for future credit availability improved, with more respondents expecting it will be easier to obtain credit in the year ahead.
  • The average perceived probability of missing a minimum debt payment over the next three months increased by 1.6 percentage points to 10.9% in November, still below its 2019 average of 11.5%.
  • The median expectation regarding a year-ahead change in taxes (at current income level) increased sharply in November from 2.9% to 4.1%, the highest reading since May 2014. The increase was more pronounced for respondents between the age of 40 and 60.
  • The mean perceived probability that the average interest rate on saving accounts will be higher 12 months from now increased 0.5 percentage point to 24.8% in November, remaining below its 2019 average of 30.0%.
  • Perceptions about households’ current financial situations compared to a year ago remained essentially unchanged in November. In contrast, respondents were more pessimistic about their households’ financial situations in the year ahead, with more respondents expecting their financial situation to deteriorate, and fewer respondent expecting an improvement in their financial situation.
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now decreased 2.3 percentage points to 38.5% in November, its lowest level since August 2019.

About the Survey of Consumer Expectations (SCE)
The SCE contains information about how consumers expect overall inflation and prices for food, gas, housing, and education to behave. It also provides insight into Americans’ views about job prospects and earnings growth and their expectations about future spending and access to credit. The SCE also provides measures of uncertainty regarding consumers’ outlooks. Expectations are also available by age, geography, income, education, and numeracy. 

The SCE is a nationally representative, internet-based survey of a rotating panel of approximately 1,300 household heads. Respondents participate in the panel for up to 12 months, with a roughly equal number rotating in and out of the panel each month. Unlike comparable surveys based on repeated cross-sections with a different set of respondents in each wave, our panel allows us to observe the changes in expectations and behavior of the same individuals over time.

Shelley Pitterson
(212) 720-2552

Public policy should encourage banking to go back to its roots: financing commerce while supporting high yield…

The unbanked are unbanked because they have nothing to bank.  In a nation driven by capital formation and returns on capital, focusing on the unbanked seems like putting the horse before the carrot.  The American Treasury Department and the central bank should be focusing public policy on encouraging capital formation and generating high yield.  Nothing in the U.S. Constitution says that consumers should be encouraged to borrow or that banks should be obliged to lend to the consumer class.

Political responses such as the Community Reinvestment Act, the Dodd-Frank Act, or the creation of the Consumer Financial Protection Board cater to voters but overlook the need for encouraging the accumulation of capital goods necessary for driving the American economy.

More importantly, political responses mentioned above serve to incentivize consumers to enslave themselves to credit even while the last four decades have seen real wages go stagnant.  The political class on the left is quick to leave out consumers’ complicity in the financial downturn of 2007-2009 where consumers were encouraged to borrow against their shrinking means to repay.  Consumers do not need protection from banks.  We need our mindsets redirected in our approach to banking.

Each household needs to rebuild their capital buffer.  It is easier said than done especially in a transition period where the timeline for capital’s replacement of labor with automation and artificial intelligence is being sped up.  Not only is more work being done from home but businesses are determining whether the benefits of keeping employees at home outweigh the costs of bringing them back in-house.  A number of employers have been transparent with updating employees on their engagement with companies offering AI-driven resources that increase efficiency.  Larger companies are partnering with technology companies whose mission is to reduce the time employees spend on certain tasks.  These are threats to labor and income and in this environment not only is the consumer tasked with increasing household capital formation but with seeking additional or alternative opportunities that provide for increases in income, savings, and investment.

One way, in my opinion, to increase capital while deriving additional income is for public policy to encourage high yield on capital.  The consumer who flips her mindset from shopper to investor needs an environment where her savings can accumulate at a faster rate; where higher residuals can be reinvested into her principal holdings and create appreciation.  Public policy should support full employment of capital and maximum prices for capital. How does the US get there?

One way to get there is for banks to abandon their risk-based interest rate pricing model, where higher interest rates is the price that riskier customers must pay for borrowed funds.  Rather, banks should abandon consumer lending altogether.  Lending money to a consumer in a stagnant income, labor replaced by automation environment so that the consumer can build a deck, finish a basement, or send a kid to school is what I call low value enterprise lending where the loan is being applied to a consumer’s wage income versus residuals the asset provides.

Instead, interest rates should reflect the competition between borrowers seeking to demonstrate their enterprise ideas will provide the greatest returns to capital and equity.  High interest rates should not be charged because of a high risk of failure.  Rather, high rates should be charged because where the lender sees high returns to equity in the enterprise, the lender seeks to capture some of that value.

Banks, then, should abandon consumer lending and put energy and resources into commercial or merchant banking.  Consumer involvement in banking should be limited to establishing savings or investment accounts with banks or owning stocks in banks.

Again, the upside from this model for banks, a focus on lending to merchants that leverage real assets to make income.  The upside for the consumer is less borrowing and more investing thus greater capital formation.  Also, the consumer may learn how to plan purchases over a long term versus seeking the psychic value of getting something now and paying for it later.  For example, a consumer may put away cash over some determined period of time to purchase that new deck without having to burden themselves with debt.

Or, a consumer may seek out a group of private consumer lenders who are not connected to the banking system thus reducing the chances of shock to the system should a borrower renege on a loan.  They will be forced to rely on the courts, lawyers, and mediators for resolving any conflicts with private lenders.