Perspectives Blog

Release the doves

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | October 20, 2014

…concerned there may be some larger shortfall in demand next year for some reason we do not yet know. While the Federal Reserve (the Fed) remains highly focused on achieving its mandate for growth, of equal importance is achieving its mandate for 2% inflation and overall price stability. On both, it is still some ways away. As a result, the Fed (and all central banks) is highly sensitive to shifts in inflation expectations by either consumers or…

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…

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…

Interest rates — Farewell, liquidity trap

Zach Pandl, Portfolio Manager and Strategist | December 15, 2014

…d since the end of 2012 (and +0.5% annualized since the low in 10-year yields in July 2012). Because of imminent Fed rate hikes and depressed yield levels, prospective returns look no better today. We recommend investors take profit in long-duration ­fixed-income sectors that benefited from 2014’s decline in rates, and look to other sources of income for their bond portfolios. With continued growth and further improvement in labor markets, the F…

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-…