In a perfect world, inflation should be boring. Boring is good. However, when you inject an additional $6+ Trillion into the economy with far fewer goods being produced, inflation becomes a story. Last month’s inflation report showed headline (and core) CPI ticked higher. However, what caught my eye was “supercore” inflation – something the Fed says is a good predictor of future prices. Suerpcore is services inflation less shelter. This was up 4.4% YoY – also moving higher. The reason: pressures with wage growth – which remains around 4.7% YoY
"Interest Rates / Bonds"
Fed’s Task in Changing Times
How aggressive can the Fed be in the coming months? The economic data doesn’t suggest a material slowdown – surprising to the upside in most cases. Therefore, are markets pricing in too many rate cuts? Maybe… longer-term yields are rallying post rate cuts. What’s this mean?
10-Yr Yield Rallies… as ‘Bear Steepener’ Warns
After the Fed initiated its easing cycle with a jumbo cut (50 bps) – the soft landing script kicked into full gear. Markets roared higher as they price in strong economic growth in the months and years ahead. And who knows – maybe that’s what we get? But have you noticed what we’ve seen with bonds post the Fed – especially the long end? Those yields have been rising – not falling. The closely watched benchmark US 10-year yield for example is up 17 basis points (where one basis point equals 0.01%.) That wasn’t Powell’s plan.
Time to Forget About Recession Risks?
Known to many as the ‘bond king’ – DoubleLine Capital’s founder and CEO – Jeff Gundlach – is well known for his contrarian calls. This week on CNBC he made the comment that he feels that we will look back at Sept 2024 and say “this was the start of the 2024/25 recession”. If Gundlach is correct – the recession has already hit the US economy. Therefore, this would imply the jumbo sized cut from the Fed this week is already too late – and will do very little to course correct a rapidly slowing economy (especially given the 9-12 month lag effect of monetary policy).
For a full list of posts from 2017…