Perspectives Blog

Gaps, not growth

Zach Pandl, Portfolio Manager and Strategist | February 25, 2014

Monetary policy is primarily about “gaps” not growth: the Fed is trying to reduce spare capacity in the economy, not bring about a rapid expansion per se. Despite concerns over cyclical weakness in labor force participation, the unemployment rate is sending similar signals as most other output gap proxies. The output gap improved despite a relatively slow expansion, suggesting weak potential growth. While it’s far too soon to revise any medium…

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…

U.S. rates — play for growth

Zach Pandl, Portfolio Manager and Strategist | December 10, 2013

More signs that U.S. growth is accelerating; with 7% unemployment rate, look for qualitative communication changes at next FOMC meeting. Higher odds of December taper but we still think January is more likely (with possible hint in December press conference). We wonder whether front-end rates can remain anchored as growth picks up. The November employment report brought more positive news on U.S. activity, with a healthy gain in nonfarm payrol…

Dovish feathers showing through

Zach Pandl, Portfolio Manager and Strategist | April 14, 2014

…rote about this issue in our primer on Janet Yellen: “By and large Fed officials agree on their goals for the economy over the longer run … Where they disagree is on what should happen between now and then: how costly is high unemployment; what are tolerable paths for bringing inflation and unemployment back to normal levels; how aggressively should the Fed work to achieve its goals; and what are the risks to action versus inaction. In our experi…

Steady as she goes

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | April 7, 2014

The March labor market report was solid, with the overall private level of employment finally exceeding the pre-recession high. The Household Survey had the unemployment rate holding steady at 6.7%. A recurrent problem is the poor quality of job growth in terms of underemployment/part timers and wage growth. The March labor market report from the BLS can be characterized as solid and showing little weather effects and probably some catch-up fr…

Fed outlook over the short and longer run

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

…ed uncertainty around QE is mostly a short run problem. Fed officials have offered few specifics about what signals would lead them to begin the tapering process. The one data point mentioned publically—a 7% threshold for the unemployment rate—was discarded by Bernanke at the September FOMC meeting press conference. At this point the tapering decision looks entirely discretionary to us, and we have very low confidence about the exact timeline. We…

U.S. rates – Forward guidance taxonomy

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

…he future differently than it has behaved in the past. Look for the market’s heavy reliance on the SEP forecasts to fade over time. At this week’s meeting, most observers (ourselves included) expect the FOMC to drop its 6.5% unemployment threshold and revert to a more qualitative form of forward guidance. This will be a symbolically important step, but is unlikely to provide much new information about the outlook for the funds rate. The current…