Perspectives Blog

QE worked, but not as advertised

Zach Pandl, Portfolio Manager and Strategist | November 3, 2014

While QE proved very effective in reinforcing the Fed’s communication about short-term interest rates, there could be simpler ways to achieve the same outcome. The U.S. experience with QE suggests it would be effective in Europe. The Fed ended QE because it succeeded and that’s good news for investors. Last week the Federal Reserve announced the end of its bond-buying program, which has been running with only brief interruptions for the last s…

U.S. rates – Waiting for the sound

Zach Pandl, Portfolio Manager and Strategist | May 5, 2014

…2% year-over-year from 1.1% previously. With a trend-like gain for April (and no revisions to prior months), the Fed’s preferred measure of core inflation will increase to 1.4% when reported on May 30. It is these shrinking gaps that motivate our cautious views about duration risk. Importantly, we do not take issue with the fact that the Fed is still falling short of its inflation and unemployment mandates. Instead, the big question is whether po…

U.S. rates — When the facts change

Zach Pandl, Portfolio Manager and Strategist | September 10, 2014

…not that far from our own. Declining spare capacity has brought forward estimates of the first rate hike by the Fed. As of December, respondents in the Fed’s primary dealer survey saw a 44% probability that the first rate hike would come in 2016 or later. Today that number is just 22%. Similarly, in the latest survey, respondents saw a 37% chance of a hike before the Q3 2015, up from 26% in December. Thus, while there’s still some room for these…

U.S. rates – An intriguing six point three

Zach Pandl, Portfolio Manager and Strategist | June 9, 2014

Fed and consensus unemployment forecasts are likely to come down after last week’s jobs report. It is not obvious what lower unemployment rate forecasts mean for U.S. monetary policy. June FOMC meeting should shed light on Fed’s worldview—in particular, whether the U3 unemployment rate still matters. The latest jobs report may look pretty bland on the surface, but I can assure you that it will generate plenty of intrigue among close observers…

A creature is stirring

Zach Pandl, Portfolio Manager and Strategist | December 8, 2014

…. Exhibit 1: Persistent above-trend growth (% annualized rate) Besides the jobs numbers, communication from the Federal Reserve last week also affected risks around the policy outlook. Four news items caught our attention: 1. Dudley continues to back mid-2015 liftoff date. New York Fed President Dudley said in a speech last Monday that a first rate hike in mid-2015 seemed “reasonable”—an addition to his remarks on November 13 which were otherwis…

Volatility and Goodhart’s Law

Zach Pandl, Portfolio Manager and Strategist | May 21, 2014

Markets are starting to make understandable inference that Fed officials see a fixed timeline for rate hikes. Implied volatility is low because perceived policy uncertainty is low. We remain focused on modest slack and sturdy growth. Recent Fed communication brings to mind Goodhart’s Law: “When a measure becomes a target, it ceases to be a good measure.” In a speech Tuesday, New York Fed President Dudley noted that Eurodollar futures are prici…