Perspectives Blog

Monetary policy shift creates new investment challenges

Columbia Management, Investment Team | August 6, 2013

Going forward, investors should look for return opportunities that do not depend upon easy money. Diversification strategies must take into account expected high correlations and the vulnerability of “safe” assets to changes in monetary policy The repricing of many assets as the second quarter drew to a close has created an expanded set of attractive investment opportunities. For most of 2013, financial markets have been responding to a nearly…

U.S. rates – Headwinds

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

…ttee will lean heavily on the idea of “headwinds” to justify these views. The concept of “headwinds” sounds vague, but we think Fed officials actually have a specific issue in mind: the right way to determine whether monetary policy is easy or tight. The diagram below illustrates the basic point. Monetary policy responds to the output gap (the reaction function) and also affects the size of the output gap (the normal transmission mechanism). Howe…

Labor market takes center stage

Zach Pandl, Portfolio Manager and Strategist | October 15, 2013

Labor market issues have long taken a central role in Janet Yellen’s career. Remarks indicate Yellen views current labor market challenges as potentially very costly for the economy, and she sees a role for monetary policy in promoting recovery. Yellen’s nomination likely raises the bar for Fed tightening, as long as inflation remains low. When it comes to the current priorities for monetary policy, investors already know where Janet Yellen st…

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

…ow. Yellen currently serves as Vice Chair of the Federal Reserve Board and her views are already widely known by market participants. If anything the announcement should reduce uncertainty around the outlook for U.S. monetary policy. 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. Here is a brief overv…

U.S. rates – Forward guidance taxonomy

Zach Pandl, Portfolio Manager and Strategist | March 17, 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 statements with some type of commitment. Current statements for 2015 and beyond are closer to the weakest type of forward guidance, a forecast that the central bank will behave in the future differently than it has behaved in the past. Look for the market’s heavy reliance on the SEP forecasts to fade o…

Is Japan’s economic rebound for real?

Daisuke Nomoto, Senior Portfolio Manager | May 23, 2013

this would create a good entry for people who have missed the rally. The two phrases “Abenomics” and the “BOJ’s Shock and Awe Monetary Easing” are all over the headlines about Japan. Prime Minister Abe unveiled his economic policy late last year calling for a 3% annual nominal gross domestic product (GDP) growth target and an aggressive monetary easing by the BOJ (The Bank of Japan) to achieve 2% inflation. The BOJ unleashed the world’s most in…