It's Hard To Raise Inflation If It's Unclear Why It's So Low
Judging by the new economic projections released by the Fed, rates will remain on hold for several years.There are no easy explanations for disinflation's persistence and it's hard to solve a problem that you don't fully understand.Perhaps the dramatically higher level of government spending to address the pandemic will be the inflation-lifting catalyst that's so far eluded monetary policy efforts.
Seekingalpha · 1d ago
Dollar And Treasuries Call Federal Reserve Bluff
The US Fed offered its latest iteration of low policy rates for longer, and longer, and longer with a promise that it would not hike for (at least) another three years in its effort to manufacture price inflation above 2%.As we've already seen in places like Japan and Europe, keeping policy interest rates near zero does not manufacture inflation when, after 40 years of slashing rates and increasing debt, the masses are already cash-strapped, debt-choked and aging.As the Fed talked its inflation-targeting talk on Wednesday, currency markets didn't buy the pitch. The US dollar continued to strengthen, with risk markets predictably falling once more.
Seekingalpha · 1d ago
Monetary Policy Beyond The Pandemic: The Fed's Risky Venture
The Federal Reserve's recent policy shift is a risky venture.Keeping rates at zero indefinitely is creating a bubble in asset prices which could burst.Monetary policy is not well suited to cure the type of structural unemployment created by the pandemic.Adopting average inflation targeting downplays the Fed's price stability mandate and threatens to bring back to the failed stagflation policy of the 1970s.
Seekingalpha · 2d ago
Open Insights: Inflation? Buckle-Up
Unprecedented monetary and fiscal spend has been necessary because of COVID's broad impact on the economy, but the fall-out from over-leverage will be more severe.We explore the arguments for and against inflation, and detail their impact.Given the US's growing debt-to-GDP ratio going forward, inflation may be the only way out from our over-indebtedness.
Seekingalpha · 2d ago
George Selgin On Average Inflation Targeting And 'The Menace Of Fiscal QE'
George Selgin is the director of the Cato Institute's Center for Monetary and Financial Alternatives and is a returning guest to Macro Musings.He joins again to talk about his views on the Fed's new framework and his recent book titled, The Menace of Fiscal QE.David and George discuss the Fed's quantitative easing evolution, and how the move to a floor system helped pave the way for fiscal QE to become a more popular policy in the present.
Seekingalpha · 2d ago
Inflation Targeting: Keep It Simple
I will assume the conventional view that interest rate policy can be used to control inflation.I have severe concerns about this.If we do not assume that the central bank can fine tune growth to match arbitrary trajectories, the story is a bit more plausible.
Seekingalpha · 2d ago
Persistent High Volatility
Small changes to interest rates or economic activity will have a big impact on stock prices.Be ready for whippy markets. Even the slightest variation in wording will make economic agents jumpy.Run a balanced portfolio, and resist the trends.
Seekingalpha · 2d ago
Powell Lets Steam Out Of Equities And Spurs Dollar Short-Covering
The Fed signaled rates would likely not be hiked for the next three years, and without additional measures, that appears to be the essence of the switch to an average inflation target.As widely expected, the BOJ did not alter its stance or its bond-buying operations.The US dollar is near the best levels of the month against the Canadian dollar. It rose to almost CAD1.3250 earlier today.
Seekingalpha · 2d ago
September Fed Meeting: The (Long) Wait For 2% Inflation Begins
The Fed has pinned liftoff to an economic outcome, namely that inflation must hit its 2% objective and be expected to exceed it for some time.13 out of the 17 Federal Open Market Committee participants penciled the Federal Funds rate to remain at the zero bound through the end of 2023 under their baseline outlook.In our most bullish scenario for the economy, we see rate hikes as being possible in late 2022. However, our central tendency is similar to the Fed's, with it being much more likely that the central bank remains on hold through 2023 before inflationary pressures start showing an overshoot.
Seekingalpha · 2d ago
Fed Rates Could Stay Low Through 2023 And Beyond
U.S. Federal Reserve keeps interest rates unchanged.Fed pledges to keep rates low until inflation exceeds 2%.Why U.S. consumer spending may slow if no stimulus deal is reached.
Seekingalpha · 2d ago
6 Negative Consequences Of Low Rates
At the epicenter of this lower-for-longer environment is the transfer of wealth from creditors to debtors - such as sovereign borrowers - further penalizing savers and worsening income inequality.Share buybacks may not be a fleeting phenomenon of the post global financial crisis period.An enormous obstacle to normalization is the burden that current debt levels would impose if rates were to increase.
Seekingalpha · 2d ago
Why We Stay Moderately Pro-Risk
The improving macro backdrop, a strong risk rally and rising volatility leave us moderately pro-risk over coming months, with a preference for credit.The outcome of negotiations of a new U.S. fiscal package looks increasingly binary: a sizable fiscal package or nothing at all before the November election.Markets will watch for any details of the Federal Reserve’s new average inflation targeting framework as the central bank holds its policy meeting this week.
Seekingalpha · 5d ago
Spread Monitor: Looking Good
Current swap spreads in the US are very low, while spreads in the Eurozone have clearly moved into "healthy" territory after spending many years in not-so-healthy territory.Swap spreads tell us that global financial markets are in very good shape, and that can often be a good predictor of future economic health.What we need to be attentive to is the return of confidence, since that will act to reduce the demand for money.
Seekingalpha · 09/11 17:49
2020 U.S. Election: What The Polls Could Mean For Policy And Markets
The ongoing COVID-19 crisis and resulting policy responses will likely make this election result more meaningful than normal.In our view, the most important policy factor that will drive financial markets over the next several months is fiscal stimulus.The second most important policy factor for financial markets will likely be tax policy.
Seekingalpha · 09/09 12:04
A Cyclical Rotation In Corporate Credit
The sudden stop to markets induced by COVID-19 caused a substantial repricing of credit risk globally, and central banks, treasuries, and ministries of finance around the world responded unequivocally.As central banks eased liquidity concerns and governments alleviated solvency risks through a massive fiscal response, credit spreads tightened rapidly within more defensive sectors.The focus now is on the economic cycle, as basic industries, capital goods, energy, and other cyclical sectors in both developed and emerging markets are still trading at spreads wide to historical levels, particularly in the lower-quality segments of the market.
Seekingalpha · 09/09 10:38
Don't Ditch Duration
Duration is a measure of the interest-rate sensitivity of a bond portfolio.As interest rates fall, longer duration bond portfolios generally appreciate more.In our view, it makes sense to have duration in a bond portfolio to mitigate the potential downside risks.
Seekingalpha · 09/09 10:35
The 1998 Correction And The Run To The Peak
The current bull market is by far and away one of the longest bull markets in history. Currently running 137 months and 2783 points from the March 2009 lows, it is one for the record books.However, it is also important to remember that it is only the first half of a full-market cycle.The last time investors were engulfed in a near-"panic" to invest was in 1998, where following a correction, the market began a seemingly endless run to the peak in 2000.There are many comparisons currently to the late '90s to explain the current bull market.
Seekingalpha · 09/09 10:19
Changing Credit Views Amid Volatility
We downgrade investment grade credit to neutral and increase our overweight in high yield as we see volatility rising after a rally in risk assets.Negotiations over a new U.S. fiscal package looked to have stalled. We still expect a sizable package, but risks of a no-deal outcome are growing.Markets will focus on the European Central Bank’s updated projections and any policy implications. The traditional U.S. election campaign season kicks off.
Seekingalpha · 09/09 06:30
One Scary Chart
Every asset class except Inflation and US Treasury Bills is above its long-term moving average.Waiting for higher interest rates and inflation the last 20 years has been the one, true "Waiting for Godot" moment as an investment advisor.The selloff in Tech has taken some of the intensity out of the day-to-day trade, but the chart shows the S&P 500 could drop further and still be well within the range of "normal" and above the 200-day moving average.
Seekingalpha · 09/08 17:29
More On Debt
The main worry I have about US debt is the possibility of a debt crisis.The event combines difficulty in rolling over debt with the lack of fiscal space to borrow massively in the next crisis.Over the next 20-30 years and more, the size of debt to GDP and the likelihood of a debt crisis is going to be far more influenced by fiscal policy than by r-g dynamics.
Seekingalpha · 09/08 12:32