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 economy’s 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

ment rate continued to move lower with November at 7.0%, down from 7.2% in September and 7.8% last January. The unemployment rate is now at the level Bernanke mentioned (only last spring) when QE would likely end. But the Fed uses broader measures to gauge health. The participation rate at 63.0% remains near its September low and the Employment to Population Ratio at 58.6% remains broadly unchanged—metrics the Fed frequently cites as sub-optimal….

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

…nction. The European Central Bank, for instance, is adamant that its “extended period” guidance is meant to clarify its existing approach, and nothing more. In contrast, many academic economists argue that policymakers should use forward guidance to intentionally deviate from past behavior in order to provide additional monetary stimulus at the zero lower bound—i.e. to go “lower for longer.” In our view, forward guidance that clarifies an existin…

U.S. rates — View update

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

…casts has not seemed to change despite meaningful revisions at the last FOMC meeting. As we have explained before (see here), the credibility of the Fed’s guidance beyond 2014 should be considered low, and should not alone be used to value the front-end of the yield curve, in our view. All else equal this would imply higher front-end rates—especially when combined with modest slack. Our views on this topic also remain unchanged. Overshooting: Wh…

U.S. rates – Headwinds

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

…omplicating their job. For economists the term “headwinds” is just a stand-in for a familiar concept: the short-term equilibrium real rate (also known as r*). The specific definition for this variable that the Federal Reserve uses in its Blue Book is the real interest rate that closes the output gap in three years, given a certain model’s forecast for the economy. Conceptually, if the funds rate is above the equilibrium rate monetary policy shoul…

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

February 24, 2014

…We believe there are important investment implications here and plan to explore these issues through a series of articles. In the short-run, central banks set interest rates largely with reference to where they understand an economy to be in its business cycle and when they expect inflationary pressures to emerge. But in the long run they expect that “real” rates — that is to say interest rates over and above inflation — will fluctuate around so…