Perspectives Blog

U.S. rates – Forward guidance taxonomy

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

…is a forecast that the central bank will behave in the future differently than it has behaved in the past. The Fed’s communication for 2014 looks like the strongest type of forward guidance. Standard Taylor Rules would still imply short-term interest rates around zero for most of this year, so there is no reason to think that the Fed will not follow through on its guidance if the economy performs as expected—they are only restating the existing…

U.S. rates — The Draghi floor

Zach Pandl, Portfolio Manager and Strategist | September 8, 2014

…bit 2: U.S. activity indicator Aside from the activity data, there were two notable developments related to the Fed policy outlook. First, senior Fed staffers published an lengthy research paper arguing that most of the decline in labor force participation since 2007 can be explained by structural (as opposed to cyclical) factors. This result is consistent with the CBO, the White House, our own research, and even Janet Yellen’s comments at the J…

What to expect from Janet Yellen’s testimony

Zach Pandl, Portfolio Manager and Strategist | February 10, 2014

…she plans to govern the committee Some investors are expecting a meaningful change in direction from the Yellen Fed We look at four reasons why we anticipate continuity with the Bernanke regime After a few bewildering weeks with Nicolas Maduro and Erdem Basci, I can’t be the only one grateful to be turning attention back to Janet Yellen. The new Federal Reserve Board Chair will make her first public appearance on Tuesday, February 11 when she t…

Janet Yellen’s Fed

Zach Pandl, Portfolio Manager and Strategist | November 12, 2013

Chair of the Federal Reserve Board might be the most powerful job in global finance, and if Janet Yellen is confirmed, her views will weigh heavily on policy decisions — and influence financial markets — for at least the next four years. Yellen should be considered a dovish central banker, relative to other Fed officials. The bottom line for investors is that as long as inflation remains low, Yellen will likely advocate a slow exit…

Gaps, not growth

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

…that we saw in the second half of 2013 remains intact. However, even with modestly slower growth, we think that Fed officials would continue the process of gradually normalizing the stance of policy. The reason is that 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. This is why the Fed’s guidance about the funds rate and the statement on lo…

U.S. rates — play for growth

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

…ids the risk that a soft patch in the data—even if just noise—delays tapering deep into 2014. On the other hand, Fed officials have set a high rhetorical bar for the conditions needed to begin slowing QE. Before the September FOMC meeting the Fed’s QE guidance stressed “cumulative progress” in the labor market—the level of the unemployment rate and total job gains. After the meeting policymakers added the condition that tapering required “convinc…

Gut check: The outlook on fixed income

Colin J. Lundgren, CFA, Head of U.S. Fixed Income | February 24, 2014

…concerned about rising interest rates? Yes. Looking at the big picture, we are still in the early stages of the Federal Reserve’s (the Fed) exit process. Tapering, or the reduction in asset purchases by the central bank, will likely continue at a steady pace over the course of the year, unless the economy experiences a dramatic shift from its current path. Tapering was the story of 2013 and largely explains the significant rise in intermediate-…