Economic Resiliency The U.S. economy continues to outperform expectations. Aggressive interest rate increases by the Federal Reserve to slow the economy and combat a spike in inflation following the pandemic were widely predicted to result in a recession. This had often been the outcome historically when monetary conditions had been tightened in this manner. Instead, the economy demonstrated its strength [...]
Chugging Along At the beginning of this year, many economists forecast a significant recession to materialize by now. Instead, the economy has continued to grow despite the strong headwind from much higher interest rates. With inflation waning and continued broad-based momentum in the economy, it is possible that the Federal Reserve may be on its way to successfully engineering the [...]
Headwinds to Tailwinds Continuing uncertainty about the path of the economy has created significantly bearish investor sentiment and positioning. Investors are unclear about the stickiness of inflation and how extreme the Federal Reserve will have to be to bring it under control, as well as the necessary timeframe. Recent problems resulting in the failures of some regional banks adds another [...]
2023 Outlook Inflation heated up throughout 2022, prompting an aggressive response from the Federal Reserve to bring it back under control. The Fed increased short-term interest rates from 0.1% to 4.4% by year-end and signaled more increases would follow. Higher bond yields for all maturities ensued, resulting in the worst return for stocks since 2008 and a bloodbath for bonds [...]
Waiting for the Pivot The financial markets continue to be laser-focused on inflation. Price increases that were initially thought to be transitory have instead been persistent and more widespread. The Federal Reserve has vowed to bring rising prices back under control, primarily by slowing the economy through interest rate increases. When inflation shows concrete signs of receding, the Fed will [...]
Highly Unusual Times There have been many twists in the odd trajectory of the pandemic economy. Global supply-chains got snarled, workers were suddenly in short supply, demand for some items exploded then evaporated, entire industries were on the brink of disappearing, much of the Chinese economy shut down for a stretch, government stimulus payments injected money into the economy on [...]
Yield Curve Confusion A strong economy combined with the impact from a shortage of workers, continued supply chain issues, Covid lockdowns in China and the Russian invasion of Ukraine have together generated the highest levels of inflation in decades. In response, the Federal Reserve has begun to hike ultra-low interest rates and halt its aggressive bond purchases that were required [...]
Fearing Inflation? Markets will be laser-focused this year on inflation and the actions required to bring it under control. The latest reading for the Consumer Price Index (CPI) rose 7.9% from a year ago, its highest level in over 40 years. Strong consumer demand combined with capacity constraints and global supply chain problems have led to shortages of parts and [...]
Fearing Inflation? We entered 2021 with promising new vaccines, oodles of fiscal and monetary stimulus and almost no inflation. We exited with a highly contagious Covid-variant, tighter monetary policy, 7% inflation and rising tensions with Russia and China. Despite these new headwinds, the economy continues its robust growth with few signs of significant easing anytime soon. All eyes in 2022 [...]
The Long View Third quarter economic activity was underwhelming. Earlier this year, investors looked forward to a robust reopening of the economy generated by a vaccine-led victory over the pandemic. While new Covid cases have recently fallen, the Delta variant was a clear headwind to third quarter activity along with supply chain disruptions and labor shortages. Reviving the economy has [...]
