Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy / Why the Fed Is on Hold While Singapore Tightens
Transcript
- Lucas: So on Monday, Singapore's central bank surprised markets by tightening policy — a move they framed as a preemptive strike against rising oil prices and the inflation risk those prices bring. And it's a useful contrast to what we're seeing here in the US, where the Fed is holding firm at three point six three percent. Luna: Right, because the Fed's last statement was all about patience. But Singapore's move suggests some central banks are seeing a different inflation picture. Lucas: Exactly. And it's worth asking why the Fed can afford to wait. The US economy is actually running pretty hot right now — real GDP growth came in at two point one percent annualized for the first quarter, a big rebound from the previous quarter's zero point five. The labor market is incredibly tight: jobless claims just hit 187,000, the unemployment rate is down to four point two percent. Luna: And yet headline CPI dropped from 334 in May to 332.6 in June. So the Fed has some evidence that inflation is cooling. Lucas: Right. The consumer price index is moving in the right direction. But core CPI — stripping out food and energy — is basically stuck at 336.1. Barely moved. So the Fed's dilemma is that the easy disinflation from supply chains is over, and now they're dealing with stickier services inflation. Luna: Singapore doesn't have that luxury. They're a small open economy, very exposed to energy imports. If oil prices spike, their inflation could accelerate quickly. Lucas: That's the key difference. The US is a net energy exporter now, so higher oil prices actually help the trade balance and boost domestic production. But for a place like Singapore, it's a direct cost push. So they tighten to get ahead of it. Luna: That makes sense. But could rising oil prices still spill over to the US? I mean, we saw import prices from China hit their highest since 2008 earlier this month. Lucas: There is a risk, but so far the Fed is looking through that. Chair Powell has emphasized that they're watching core services excluding housing, which is more tied to wage growth. And wage growth is moderating — average hourly earnings are up only a few cents to thirty seven sixty. So the data gives them cover to hold. Luna: It's interesting that all this macro strength — GDP, jobs — is happening while the Fed hasn't cut. Some would say that's the soft landing narrative playing out. Lucas: Yeah, and if today's conversation made that picture a little clearer for you, I'll just mention — the way we keep these episodes ad-free and focused on substance is listener support. If you find value in walking through the economy with us, consider buying us a coffee at buy me a coffee dot com slash fexingo. Luna: Absolutely. It's a small gesture that lets us keep digging into these angles without any sponsor noise. And we appreciate everyone who does. Lucas: So back to the divergence. Another way to see it is in the bond market. The ten-year Treasury yield is at four point six four percent, the two-year at three point seven six. That's a steep curve historically. Luna: Usually a steep curve signals expectations of future growth and maybe inflation. But if the Fed is on hold and Singapore is tightening, what does the curve say about the global outlook? Lucas: Well, the steep curve in the US partly reflects term premium — investors demanding more compensation for holding longer-term bonds given the uncertainty around fiscal policy and tariffs. But it also suggests the market believes the Fed will eventually cut, just not yet. Luna: Meanwhile, equity markets are mixed. The S&P 500 is near all-time highs, but the Nasdaq is down one point three percent over the past five days. Tech is sensitive to rates. Lucas: Right. Higher for longer is tough on high-valuation stocks. And if oil keeps rising, that could push bond yields up further, compressing multiples. But for now, the macro story is that the US is in a sweet spot — solid growth, cooling inflation, a patient Fed. Luna: The question is how long that sweet spot lasts. If core inflation stays sticky, the Fed might have to move again. Or if oil really takes off, the calculus changes. Lucas: Exactly. For now, the Fed is comfortable being the outlier among central banks. But they're watching the same oil prices Singapore is. And that's a story we'll keep tracking.