Perspectives Blog

Dovish feathers showing through

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

…nomy 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 experience, the relative views of individual policymakers on these types of questions line up surprisingly often. This…

Steady as she goes

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

…finally exceeded the pre-recession high—nearly 5 years after the recession ended. The Household Survey had the unemployment rate holding steady at 6.7%. We may see a slower reduction in coming months as more people enter the labor force. The labor force rose 503K, but employment levels rose a smaller 476K, meaning the unemployed level rose by 27K. Most of the labor force rise was due to re-entrants too, probably many whose unemployment benefits…

Snow job!

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

…al monthly change is within 90,000 plus or minus of what they report. Despite the cheery news of the drop in the unemployment rate to 6.7% in December from 7.0%, there were warnings flags in this report as well. The Labor Force Participation Rate fell to 62.8%, the lowest since 1978. Behind this, the ranks of the unemployed fell by 490K persons, with 143K finding work but 347k leaving the labor force entirely. So most (75%) of the drop in the une…

U.S. rates – Forward guidance taxonomy

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

…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 guidance is already obsolete, which is why markets have not reacted as the unemployment rate has fallen close to…

Yellen at Jackson Hole

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

…ew. Her remarks of course included the usual statement that there remains slack in the labor market and that the unemployment rate probably understates the degree of slack. However, those conclusions have never really been a matter of debate among mainstream economists. Instead, the key questions are (1) to what degree does the unemployment rate understate slack? and (2) what does that mean for the FOMC’s exit timing? On these questions we saw th…

What investors should know about Fed forward guidance

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

…t meeting as Fed Chair, the FOMC revised its forward guidance for the funds rate, dropping its reference to 6.5% unemployment and instead stressing the committee’s qualitative assessment of the economy. The change was a symbolically important step, but did not alter the broader outlook for policy rates, in our view. The existing guidance was already obsolete, which is why markets hardly reacted as the unemployment rate fell close to the threshold…

U.S. rates — View update

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

…report. Based on demographic trends, we estimate that “breakeven” payroll growth—the amount needed to lower the unemployment rate—is around 75-100k per month. If job growth continues around 200k per month, it’s very likely the unemployment rate will keep falling. More importantly, the bigger issue is not the month-to-month details but the amount of labor market slack in general. Few serious observers think the U.S. economy is running at full cap…