As expected and discussed in the January Macro Tides the December Consumer Price Index (CPI) dropped below 7.0% falling to 6.5% from 7.1% in November.
One of the themes I’ve discussed in recent months is the disconnect between a 40 year high in inflation and the lack of experience money managers have in understanding the monetary policy required to deal with such high inflation, including managers with 25 to 30 years of experience
In January Goldman Sachs projected that the FOMC would increase the federal funds rate at every other meeting (each meeting is 6 weeks apart) starting with the March meeting.
In 2021 the FOMC refused to accept and acknowledge that inflation was getting worse in the second and third quarter and continued with its monthly purchases of $120 billion in Treasury debt and Mortgage Backed Securities.
In March 2020 the Federal Reserve was able to use old and new tools to manage the unimaginable – a Pandemic. The Fed stabilized the Treasury bond market and the municipal bond market through its purchases and back stopped government loans to small and medium sized businesses to keep them from going under.
The 10-year Treasury yield finished 2020 at 0.917% and then climbed to 1.765% before topping on March 30. The 30-year Treasury yield rose to 2.505% on March 18 after ending 2020 at 1.646%. In the January 11 Weekly Technical Review (WTR) I noted that Treasury yields had broken out to the upside and that the 10-year Treasury yield would likely climb to 1.75% to 1.95% in 2021. “Treasury yields broke out on January 6 as expectations of more fiscal stimulus and technical selling kicked into gear. At some point in 2021, the 10-year Treasury yield could spike up to 1.75% to 1.95%.”
Transitory is defined as being of brief duration, tending to pass away and not persistent
Some changes unfold over time and it’s possible to see them coming. There are demographic changes coming in the next decade that will change the direction of the U.S., since the Silent generation and the Baby Boomers hold a different view of government than Gen Z’s and Millennials.
Some changes unfold over time and it’s possible to see them coming. There are demographic changes coming in the next decade that will change the direction of the U.S. since the Silent Generation and the Baby Boomers hold a different view of government than Gen Z’s and Millennials.
In response to the COVID-19 pandemic governments imposed shelter in place rules for their citizens and issued orders to close all but essential business in their country. The collective impact resulted in an unprecedented global plunge in economic activity that threatens the existence of many small and medium size businesses...
Although there were good reasons to question whether GDP growth would accelerate in the first quarter, there were also good reasons why I expected the rate of growth to improve before mid year.
In October the International Monetary Fund (IMF) lowered its 2019 GDP forecast to 3.0% from 3.2% in July. This represents a marked slowing from global growth of 3.8% in 2017. The primary driver of the slowdown has been a retrenchment in global trade and business investment in response to the ratcheting up of trade tariffs since early 2018.
In May the Congressional Budget office (CBO) updated its 10-year fiscal estimates for federal revenue, spending, and annual deficits through 2029. The CBO is a non partisan agency tasked with analyzing data to provide Congress estimates for GDP growth and the impact on government spending and revenue from changes in tax laws.
The expectation of a global rebound in the second half of 2019 was predicated on a positive resolution in the trade talks between the U.S. and China and the U.S. and the European Union. With a burst of stimulus from the Peoples Bank of China and Chinese fiscal stimulus since last summer, the global economy was beginning to show signs of improvement.
What happens in China clearly does not stay in China so the outlook for China’s growth in 2019 is one of the keys to how the global economy will perform and how financial markets will respond to that level of growth.
After the meeting on September 26 the FOMC published its dot plot and the expected path for the federal funds rate through the end of 2020. If all goes according to this script the federal funds rate will be raised in December, three more times in 2019...
Synchronized global growth was one of the main themes coming into 2018. In the second quarter GDP in the U.S. was the strongest since 2014, even as growth around the world downshifted. While global growth will be decent in the second half of this year, growth has already slowed in the U.K, Europe, China, and Japan.
The Federal Reserve has two primary mandates: maximizing employment and stable prices. Congress also included moderating long-term interest rates as part of the Fed’s overall objective, but that should be the offshoot of stable prices. In May the unemployment rate fell to 3.8% which is the lowest since April 2000.
It seems that after years of expecting inflation to rise to its 2.0% target the Federal Reserve and manyeconomists have concluded it’s just not possible. The reasons most often cited are the Amazon Affect,Artificial Intelligence, weak wage growth, years of excess capacity, and transitory factors like the mobile phone price war in March 2017.
GDP growth slowed in the fourth quarter to 1.9% down from 3.5% in the third quarter. Both numbers were skewed by trade data. Third quarter GDP was lifted by .7% from the export of soybeans to South America, while imports shaved -1.7% from fourth quarter GDP.
Throughout history banks have been at the epicenter of every financial crisis. That notoriety of failure led to the formation of Central Banks. In the wake of the 2008 financial crisis, global banks have repaired and strengthened their balance sheets, especially in the U.S.
During the 35 year secular bull market that began in October 1981, there were a number of sharp increases in yields in which bond prices fell. But investors who held on were bailed out by the secular bull market and eventually recovered all the losses and with gains to show for their patience.
China’s GDP rose 6.9% in the first quarter, but is a slowdown coming? Emerging Markets have been on fire this year, will the rally continue? U.S. GDP is forecast to grow to 3.5% in the second, but could the delay in tax cuts dampen the rebound?