Perspectives Blog

U.S. rates – Waiting for the sound

Zach Pandl, Portfolio Manager and Strategist | May 5, 2014

…ent rebound were caused by winter weather, but it seems a plausible story. Exhibit 1: U.S. Activity Indicator (% annualized growth) We have also seen further improvement in the all-important “gaps”—the difference between the unemployment rate and its structural rate, and the difference between inflation and the Fed’s target. Since the end of last year, the unemployment rate has declined to 6.3% from 6.7%, a period over which the labor force part…

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…

Snow job!

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

…prior month data are continuing and this data will surely be revised. The BLS is only 90% confident that the actual 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 490…

U.S. rates — View update

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

…growth also slipped to 2.1% year-over-year. However, we would caution against reading too much into a single jobs 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…