Perspectives Blog

The Fed’s outlook and leadership in flux

Zach Pandl, Portfolio Manager and Strategist | August 1, 2013

Fed policy outlook looks increasingly fluid, including changes in the consensus on the leading candidate for next Fed Chair. There has been increasing speculation around changes to the so-called “Evans Rule”—the Fed’s commitment to keep short-term interest rates low as long as the unemployment rate remains above 6.5%. For the upcoming FOMC meeting, we think a likely outcome would be emphasis that the QE tapering decision will depend on the inco…

Fed outlook over the short and longer run

Zach Pandl, Portfolio Manager and Strategist | October 23, 2013

Heightened uncertainty around quantitative easing is mostly a short run problem. We see roughly flat odds of 20% for tapering at each of the next four meetings—December, January, March and April—and an additional 20% chance that the current QE pace continues beyond that. We have turned modestly more cautious about interest rate risk in our portfolios. One of the ironies of Ben Bernanke’s tenure is that he set out with a goal to improve Fed com…

What investors should know about Fed forward guidance

Zach Pandl, Portfolio Manager and Strategist | March 24, 2014

The Fed’s communication for 2014 looks like the strongest type of forward guidance, one that clarifies the existing policy approach and backs up its statements. Current statements for 2015 and beyond are closer to the weakest type of forward guidance, which means they should be considered less credible. Look for the market’s heavy reliance on Summary of Economic Projections (SEP) forecasts to fade over time. Last week, at Janet Yellen’s first…

The Yellen Fed

Zach Pandl, Portfolio Manager and Strategist | October 9, 2013

President Obama to nominate Janet Yellen for Fed Chair. Yellen has strongly supported the Fed’s unconventional easing measures in recent years, and we expect that her nomination will therefore be interpreted as favorable to duration and carry trades. Yellen has described an “optimal control” framework, which could indicate a coming revision to the current structure of the FOMC’s forward guidance. According to press reports, Preside…

The Fed’s decision tree

Zach Pandl, Portfolio Manager and Strategist | October 8, 2013

The outlook for quantitative easing remains difficult to gauge. We see decent odds that tapering begins in the not-too-distant future—primarily because we expect firm growth. If Fed officials were to revise their views on the costs and/or efficacy of QE, they may attempt to lean harder on the forward guidance tool. Last week the debate about quantitative easing (QE) was quickly overshadowed by the fiscal circus in Washington. The economic impa…

Could tapering be good for stocks?

Fred Copper, Senior Portfolio Manager | December 16, 2013

…of QE is cut (tapered), the market may actually be cheered by the end of what has always been perceived as a temporary and extreme form of life support. Few issues currently cause as much investor angst as the timing of the Fed’s eventual reduction in the pace of quantitative easing, aka tapering. In May, when the Fed first spoke concretely about slowing the rate at which they are buying government and mortgage securities, interest rates around…

U.S. rates – Headwinds

Zach Pandl, Portfolio Manager and Strategist | March 17, 2014

At this week’s meeting, the Federal Open Market Committee looks likely to rework its forward guidance for short-term interest rates once again. We expect revised forward guidance to lean heavily on the idea of “headwinds”; this is a stand-in term for a low equilibrium real rate. We expect that the new guidance will make three main points: (1) that the FOMC is in no hurry to raise rates, (2) that rate hikes can proceed gradually once…