Displaying items by tag: inflation

(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.

(Washington)

In what could be could news for those worried about the Fed hiking us into a recession, one of the Fed’s top leaders has just come out with a very dovish tone. St. Louis Fed chief Bullard says the Fed needs to slow its pace of rate hikes to preserve its credibility. “Inflation expectations in the U.S. remain somewhat low, suggesting that further normalization may not be necessary to keep inflation near target”. He suggests that the best policy going forward may be to freeze hikes.

FINSUM: One of the things that has worried us about the Fed is that they seem to be viewing rate hikes as some sort of automatic pre-determined path towards normalization rather than basing it on actual inflation numbers.

(New York)

If anything is becoming clearer in financial markets, especially after yesterday, it is that rates and yields are bound to rise. Thus many might be worried about how to protect their clients from the changing market. Barron’s has some suggestions. The key is to hold a fixed income portfolio for several years, a minimum of six, and to make sure to reinvest proceeds in higher yielding bonds. To achieve the targeted five-year maturity sweet spot, consider Vanguard’s intermediate Treasury fund, while also mixing in some Treasury Inflation Protected Securities (TIPS) to provide further protection.

FINSUM: This seems like a good strategy for a long period of gradual rate hikes.

(New York)

For a while there it was looking less likely that the Fed might hike aggressively. Weak jobs numbers seemed to indicate that the economy might be headed downward instead of upward, which would have put rate hikes on hold. However, investors are now once again increasing their bets that rates are going to rise. Many investors now expect the Fed to hike three to four times this year. According to Allianz, “You have this tug of war with the Fed trying to match policy to rising inflation expectations without taking the wind out of the sails of the economy”.

FINSUM: To be totally honest, we don’t think Powell is going to be hawkish enough to hike 3-4 times this year.

(Washington)

There is a lot of rhetoric out there about how the labor market is extremely tight, which will push wages up and force the Fed to raise rates. According to Barron’s, if you really compare this year’s labor market data versus last year, it looks like there is an unemployment pool of at least around 1 million Americans that could re-enter the labor force. This group is often referred to as the “hidden unemployed”.

FINSUM: This means that there is actually more capacity for the labor market absorb jobs than is often reported, meaning there may not be as much upward pressure on wages, and therefore, rates, as expected.