Displaying items by tag: inflation

(Washington)

The whole market rally this year has pretty much been predicated on the Fed u-turning on rates. This makes sense, as it signaled that the Fed was not going to hike the economy into a recession. However, there are reasons to be nervous that the Fed may reverse course. One top economist thinks that the Fed may hike twice more this year as strong economic data will start to push Powell’s hand. US service industry data has been quite strong, and overall, “The fundamentals are not that bad. That could mean Powell has no choice but to hike.

FINSUM: We don’t necessarily agree with this view. While we are nervous about the Fed reversing course, we don’t think they will be under pressure to do so until inflation actually heats up.

(Washington)

Several weeks ago the Fed slammed the brakes on more rates rises. The market has taken a deep sigh of relief to the tune of major gains in stock indexes. But within the pause is a more sophisticated, and perhaps more consequential, rethink of the Fed’s goals. The Fed is puzzled by weakness in inflation. With the labor market so tight, inflation should be rising strongly. Yet it has failed to reach the Fed’s two percent goal and appears to be weakening again. Accordingly, there are discussions going on internally at the Fed, about the disconnect and how to approach it.

FINSUM: There is a major question here—will the Fed revise its target higher and take a more aggressive approach to boosting the economy, or will it leave the target at 2% and be content. In either scenario, rates look unlikely to rise soon.

(Washington)

Earlier this week it seemed that the market might finally have a reason to believe the Fed might pause its inexorable march higher in rates. That reason was that inflation had dipped below the Fed’s target. Being just a single occurrence, it was a weak-footed hope. Now, new data shows the American consumer is doing well, as retail sales jumped 0.9% in November. The explanation for the jump is that a drop in gasoline prices helped fuel more retail spending.

FINSUM: Consumers are obviously still feeling comfortable, which will give the Fed a bit of comfort about the stage of the cycle.

(Washington)

The moment many investors have been waiting for (or not, depending on how you look at it) has arrived. Rate hikes finally have a chance to slow after their steady rise over the last couple of years. New inflation data has come in showing weakness. Inflation has now fallen below the Fed’s 2% rate, which means the central bank has cause to pause its rate hikes as the economy looks to be on more fragile footing.

FINSUM: There are two ways to look at this. The first is that it takes some momentum away from the current yield inversion. But on the other hand, it could be an indicator that the economy is headed towards recession.

(New York)

Jack Bogle, the founder of Vanguard, is a legendary name is investing. Not only did he found and grow one of the largest asset managers in the world, but he has a habit of being right when he predicts returns. Well, he has just made another prediction, and unfortunately it is not one investors will like. He thinks returns over the next decade are going to lag their historical levels badly. His forecast is that investors can expect a 1.75% net return with a 50%/50% stock-bond portfolio over the next decade.

FINSUM: If this call turns out to be right, it will have huge implications for retirees and pension funds, as “safe spending” rules and total returns for pensions will be devastated. That sad, we think forecasting that far out is all but useless.