Displaying items by tag: inflation

(Washington)

In what could come as very welcome news for investors across all asset classes, Fed Chief Powell has indicated that the Fed may take a break from hikes for a while. The question is when this pause in hikes will occur, and the Fed is debating this internally. The central is expected to introduce the words “for now” in regards to its plan for near-term hikes, a new phrase that signals conditionality. According to a former Fed economist, “Given that there’s no visible inflation threat -- not in the data and not in the FOMC forecasts -- it makes sense to inject conditionality on future moves”.

FINSUM: We hate analyzing Fed speak, but a pause in hikes seems like a good idea to us. With inflation low, there is no reason for the Fed to forcefully invert the yield curve and cause a recession.

(New York)

Anybody who is worried about a pending bond bear market might take some solace in recent news. Bond markets are becoming increasingly skeptical of the Fed’s bullish stance on the economy, and traders believe there won’t be nearly as many rate hikes as the Fed says. The US has just seen a weak inflation report, and a flattening of the yield curve, both at home and in the Eurodollar market, spells ill for the economy. So while the Fed says it will continue to hike rates into 2020, top market analysts are saying things like “The markets are telling us that there is a pretty high risk of economic slowdown or recession at the end of 2019” (Janney Capital Management).

FINSUM: We think the economy will definitely start to weaken before 2020. Perhaps we will not have a deep recession, but we definitely don’t think there will be continuous hikes for the next year and a half, which is good news for bonds.

(Washington)

In a widely expected move yesterday, Jerome Powell announced the first hike of his stint as the head of the Fed. The move was a quarter point higher to between 1.75% and 2%. Powell promised to be more open and transparent about the Fed’s outlook than in former times. Powell presented the rosiest outlook on the US economy in memory, repeatedly expressing strong optimism. He indicated that there were two more hikes planned for this year.

FINSUM: All the optimism comes across as quite hawkish despite Powell’s intentions to seem gradual. We appear to be on definite course higher.

(Washington)

All eyes on the Fed. Not only is the winding down of the Fed’s balance sheet a potentially major issue to Dollar liquidity and emerging markets, but the market has rate worries to deal with. The big question is how low the US jobless rate can go before it sparks big inflation. Currently sitting at 3.8%, the Fed needs to decide how long it can tolerate the hot market before hiking rates quickly. The US jobless rate has only twice been so low. Once in the 1960s, which led to a decade of high inflation, and once in 2000, which was followed by a recession.

FINSUM: There is currently a big disconnect between the rate rises the market is pricing in versus what the Fed is forecasting. The market may lose that gamble very badly.

(New York)

One of the key story lines that has been driving global equities gains over the last year and a half is that economic growth has finally returned to all corners of the world. Yet just as that story was becoming very believable, it is starting to fade. Global benchmarks for measuring growth have fallen undeniably since January, especially in Europe, and inflation is cooling in developed economies, both signs that the boom in expansion might have come to an end. Everything from shipping costs to copper prices have fallen as demand has waned.

FINSUM: Are we headed towards a global recession? It is always hard to forecast, but it seems as though we may be.