Thoughts From The Divide: Bumps and Jumps

At the risk of sounding like we’re going soft on Jerry and his pirate crew of crack forecasters, one might almost feel bad for the folks at the Eccles building. Despite their manifest belief that current real rates are restrictive, the economic “party goers” seem to be finding it very easy to keep going with the available supplies of punch. The takeaway seems to be that it’s hard to stop a party when fiscal policy keeps adding to the punchbowl. Grannie Yellen seems to love a booze up, followed by a Chinese banquet, and if we were honest, we might admit that’s pretty much been our MO for the last 15 years
BY JON WEBB
  • Posted on April 12, 2024
  • by MI2 Research

“Recent data had not increased their confidence”

One can’t take a metaphorical step through economic and financial news this week without stubbing one’s toe on something inflation related. Whether it was CPI, the Fed minutes (which contained the above quote) or PPI, inflation and its corollary effects on markets were seemingly unavoidable, as noted in this article from Yahoo Finance. Not wanting to reinvent the wheel, we highly recommend reading the latest on the CPI from John Authers (and additionally recommend signing up to receive the newsletter). The TLDR is the Fed’s latest bugaboo, “services now swamp all other contributions to the US CPI”, and “the numbers don’t get better on closer examination”, with trimmed mean inflation “not continuing what had appeared a clear trend of disinflation” as “sticky prices get stickier”. Cutting straight to the point on the “works” we discussed last week, Authers notes, “financial conditions more broadly remain quite easy”. If there was any doubt, please see last quarter’s reports on LVMH earnings or this “nugget” (forgive) on Costco’s gold sales.

At the risk of sounding like we’re going soft on Jerry and his pirate crew of crack forecasters, one might almost feel bad for the folks at the Eccles building. Despite their manifest belief that current real rates are restrictive, the economic “party goers” seem to be finding it very easy to keep going with the available supplies of punch. The takeaway seems to be that it’s hard to stop a party when fiscal policy keeps adding to the punchbowl. Grannie Yellen seems to love a booze up, followed by a Chinese banquet, and if we were honest, we might admit that’s pretty much been our MO for the last 15 years. Perhaps the lesson is that it remains difficult to convince policymakers to rein in fiscal policy in an election year. A case in point is the latest assertion by the Commander-in-Chief that the Fed will be cutting rates. Perhaps POTUS is just another 2-bit forecaster like the rest of us. But you will forgive us for wondering whether the Fed might buckle under its (subconscious?) political leanings if the latest story on Powell’s desire to be “somebody who held the line against… Trump” has even a shred of legitimacy. However, “sugar-rushing” the economy won’t last forever, and should the latest inflation data be a sign that CPI is on a path not of bumps but of jumps, duration holders may be feeling a touch of buyer’s remorse.

https://www.gocomics.com/calvinandhobbes/1992/04/08

 

Other posts

Thoughts From The Divide: Regrets

BY JON WEBB
With the Fed in blackout, the market has been left to its own devices to digest this week’s onslaught of economic data. The inflation data was particularly indigestible. CPI numbers came in hotter than expectations, with both Core and Headline higher than forecasts on a YoY basis at 3.8% and 3.2%, respectively: only slightly worse than expected, but worse than expected. The market also had to deal with PPI that was substantially hotter than expected: the month on month came in at 0.6%, double the consensus forecast. Under the surface, goods inflation appeared to once again be rearing its head, accounting for “about two-thirds of the rise in the headline PPI”, courtesy of “a 1.2% surge in goods prices, the biggest increase since August 2023”. (The Houthis are not helping). While the Fed may have taken a temporary vow of silence, Yellen is under no such constraint. Speaking in an interview on Fox, the Treasury secretary said, “I regret saying it, [inflation,] was transitory”, following up with the jab that “I think transitory means a few weeks or months to most people” (how long is a piece of string? To be fair, predicting inflation is, apparently, tricky: “there are clear limitations to how far into the future we can forecast inflation”). Read more →

TFTD: No Soup for Bond Investors

BY JON WEBB
Equities are clearly happy, a Maybe the idea isnd some commentators tell us it’s because a tariff apocalypse has been averted. In the game of chicken that markets had been following with ill-concealed horror, perhaps the real winner was common sense, although equity investors are a close second. Read more →

NDR Fixed Income Allocation Strategy January 2023 Update

BY BRIAN SANBORN
The NDR Fixed Income Allocation Strategy, Positioning Update Read more →
Back to all posts →