Tag Archives:

Federal reserve

Is QE unquestionably supportive for risk assets? I think not.

We have written about quantitative easing (QE) many times over the years, yet there remains more to be said: the great QE experiment is not yet over. Given the result of the EU referendum, speculation is rife as to whether the Bank of England will embark on another round of QE to stimulate the UK economy; arguably making this a good time to debate the efficacy of such strategies.

It’s safe to s…

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Richard Woolnough’s views on the U.S. economy and bond markets. A video.

In the second part of the video from our recent New York research trip, M&G’s Richard Woolnough takes a look at three more topics. Firstly, the U.S. labour market is strong and inflationary pressures are building. The Federal Reserve is currently on hold due to external events, but maybe not for long. Secondly, while the lower oil price by and large is beneficial for Western economies, bond val…

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the us economy is not slowing down its getting close to full employment

The US economy is not slowing down, it’s getting close to full employment

We are a little bemused following the latest US Employment report. The headline figure of +38,000 jobs for May (expected: +160,000) disappointed the market, with Treasuries rallying and a June/July rate hike off the table in most economists’ views. A decline in the participation rate to 62.6% helped the unemployment rate fall to 4.7%, the lowest level since 2007, while average hourly earnings r…

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US inflation expectations are rising fast, but inflation is rising faster

2015 saw global inflation risk premia collapse, led by the developed world. US, UK and European annual inflation rates spent most of the year at or around zero with numerous dips into negative territory. Short dated breakevens correspondingly fell to levels that we last saw during the financial crisis (well, to be fair, they went far lower back then, but we are still at crisis levels today), an…

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Robotisation rates are correlated with demographics

“We need to hike…so that we have room to cut if we need to”. Eh? And some robot stuff too.

I keep hearing the argument that the Fed needs to hike, so that if the US economy slows down again it will have room to cut rates once more.  In other words it needs to get away from the zero bound so that the traditional monetary policy tool of rate cutting comes back into play in the future.  In less cerebral moments I may have made this argument myself, but I’m struggling to remember why it …

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As economists predict a Fed rate hike, can we learn anything from the 2013 “Fed Fake”?

Thirty-five out of forty-one economists surveyed by Bloomberg currently expect the FOMC to hike the Fed Funds rate on September 17, thereby starting a period of policy normalisation. Most have pointed towards the July FOMC statement which noted better data on net in June and suggested some progress toward the conditions for lift-off. Those economists forecasting a rate hike will tell you that t…

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Why have bonds sold off – and why did they even rally in the first place?

Ben Bernanke has spent a good deal of time explaining on his blog why he thinks interest rates are so low (something that Martin Wolf wrote a column on earlier this week).  An extremely quick and dirty summary is low nominal interest rates and yields can be explained by low inflation, however this doesn’t explain why real interest rates are also low.  Bernanke doesn’t think low real interest ra…

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The US unemployment report: challenging the payroll consensus

The US unemployment report for April highlighted the continuation of the economic recovery. The market is now in the habit of viewing a job creation number of anything less than 200,000 as a weak result for the labour market and anything more than 300,000 as a strong result. Anything in between and the conclusion amongst economists is this: the Federal Open Market Committee (FOMC) is on hold, e…

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Operation normalise

The Fed has basically used three major themes in response to the financial crisis from a monetary point of view:

  1. Lower short term rates
  2. Quantitative easing
  3. Operation twist – an attempt to flatten the yield curve

The Fed has communicated that it now expects the first move in normalising rates as the economy recovers will be to increase short term rates. Personally I think there are other alter…

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Long US Treasury bonds are overvalued by 250 bps. Discuss.

As we started 2014 the US Treasury market was expecting 10 year yields to be at 4.13% in a decade’s time. This 10 year 10 year forward yield, derived from the yield curve, is a good measure of where the bond market believes yields get to if you “look through the cycle”, and disregard short term economic trends and noise. I wrote about it here and suggested that we were approaching the top of th…

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