Perspectives Blog

Rebalancing the U.S. economy

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | January 13, 2014

Both fiscal and monetary policy will begin to normalize in 2014 The economys performance will be an important metric for markets as growth needs to catch up The key to getting growth beyond 2% is for business to borrow to improve/expand productive capital It’s happening again—a fourth quarter bounce in economic activity that extends into the first quarter and supports the view that growth really, finally, has started to accelerate. Such bounc…

Signs point to an improving U.S. economy

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | December 9, 2013

a 57.3 in November, the highest reading since April 2011, with the employment component rising to the highest level in a year. This week also saw strong vehicle sales reports, with sales levels reaching 16.41 million (SAAR), up 7% from a year ago and the strongest in almost seven years. Factories are humming and manufacturing (notably autos) saw the best back-to-back job gains in two years. Construction also ticked stronger in both residential a…

Labor market takes center stage

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

ocused on an idea called the “efficiency wage theory”, which argues that firms set wages in an effort to promote worker morale and thereby improve productivity. For the economy as a whole this theory helps explain involuntary unemployment, because efficiency considerations move wages away from the market equilibrium. Some of her other work focused on topics like labor market turnover and the psychological effects of job loss. Yellen is also uniqu

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…

U.S. rates — View update

Zach Pandl, Portfolio Manager and Strategist | April 4, 2014

Compared to the market consensus, our views have been more negative on three key duration fundamentals. Following recent remarks by Fed Chair Janet Yellen, we are now less confident about how to read Yellen’s policy strategy. We are still expecting higher rates; however, we now have less conviction that 3-5yr Treasuries will continue to underperform on the curve. For the last couple of months we have argued that portfolios should remain underw…

U.S. rates – Headwinds

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

erm interest rates once again. By our count this will be the seventh variation since the funds rate reached zero (the previous six being “some time”, “extended period”, “mid-2013”, “late 2014”, “mid-2015” and the current 6.5% unemployment threshold). All signs suggest that Fed officials favor replacing the current threshold-based forward guidance with a framework tied to their qualitative assessment of economic conditions. We expect that the new…

Slow growth: Why is it here and will it stay?

February 24, 2014

There is no consensus on the root causes of slow growth. As economists seek explanations, the secular stagnation theory has re-emerged. Strong evidence suggests the neutral real rate has fallen. (But is it negative? We explore this question in this continuing series over the next few weeks.) By Marie Schofield, Chief Economist and Toby Nangle, Head of Multi Asset Allocation The idea that economies may be undergoing a long period of slow growth…