It was a privilege to recently speak with @LHSummers at the institutional #BlackRockFutureForum on a wide range of topics, and in addition to the highlights that follow, keep an eye out for summary sessions from the event on @blackrock’s The Bid podcast in August.
Prof. Summers argued that the proper paradigm for viewing the #economic#recovery is the tripartite series: 1) collapse, 2) sharp bounce back and 3) a long slog. Unfortunately, he thinks most of the bounce back has occurred already and we’re in for an economic slog now.
He continued by suggesting that the aftershocks to be most concerned with were: 1) continued deterioration of the #Covid situation in the U.S., 2) forthcoming problems in the loan and commercial #RealEstate sectors, and 3) possible #EmergingMarketsDebt crises.
We disagreed somewhat on the #economic prospects for #Europe, where I think the region is emerging from the #Covid health crisis in better shape than the U.S., starting #equity valuations are cheaper…
… and from a #policy standpoint, the willingness to functionally mutualize #debt through the #EurozoneRecoveryFund is a game changer for the region.
By contrast, @LHSummers argued that there was still a complex array of political considerations in #Europe that needed to play out (particularly in a post-Merkel world), #risk premia in the region were inadequate…
…and the U.S.’s #financial institutions are much stronger than those in #Europe, which all present risks to #investment in the region’s #markets.
As always, we’d like to thank the clients that joined in the Forum this year, and for those unable to attend, we hope the forthcoming summary Podcast will be useful!
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Yesterday’s #CPI data was highly anticipated by #markets, and particularly whether the elevated shelter #inflation from last month’s data ended up being a quirky aberration within service level inflation that is still quite a distance from the Fed’s 2% intermediate-term target.
What compounded this quandary last month was a very strange divergence between the Owner Equivalent Rent (#OER) calculation and that for general #Rent.
Those two data points typically migrate closely together over time, with a maximum divergence of 9 basis points (bps) in 2023.
As was widely expected, the @federalreserve today halted the most aggressive policy rate #HikingCycle since 1980, leaving the Fed Funds range unchanged at 5.0% to 5.25%, a level that appears clear to us to be finally having an impact on the #economy.
We think today’s actions represent a “Hawkish skip,” which implies that #policy makers are seeking more #data before potentially hiking rates again in July, or September.
For our part, we think #ChairPowell’s comments at the press conference made it clear that the #FOMC is seeking to balance increasingly restrictive monetary policy with the high degree of uncertainty around the tightening of #CreditConditions…
Today’s #CPI report for May showed another very firm depiction of where #inflation currently resides in the U.S., with #coreCPI (excluding volatile food and energy components) printing at 0.44% month-over-month and 5.33% year-over-year.
Meanwhile, #headlineCPI data printed 0.12% month-over-month and came in just above 4% year-over-year, with declines in #energy components and some food prices being offset by gains in #shelter and used cars and trucks.
Overall, headline #inflation does appear to be moderating at a faster pace and we believe that the trend in inflation (despite the firmness of core measures in today’s report) is broadly heading in the right direction, relative to the @federalreserve’s inflation target.
We’ve seen the pace of #payroll gains decelerate to roughly the monthly trend pace from the last expansion; consensus has been waiting for this moment and expected a 195,000 job gain in May, but the data printed considerably stronger at 339,000 #jobs gained.
The three-month moving average of #nonfarm payrolls sits at 283,000, down from 334,000 jobs at the start of the year, but what the #LaborMarket imbalance needs is more supply and more slack.
The #unemployment rate ticked up to 3.65%, close to its 12-month average level, and average hourly #earnings (a volatile figure) gained 0.33% month-over-month and 4.3% on a year-over-year basis.
Today’s #CPI report continues to depict #inflation that is just too high for most people’s good, especially the @federalreserve’s.
In fact, the report showed that #inflation remains remarkably sticky, which doesn’t correspond to virtually any practical thinker’s timeline of when it might be expected to start to come down further.
These elevated levels of inflation continue to be remarkably high relative to the many months with which the #economy has now operated with persistently higher #InterestRates.
A week ago, after hearing #ChairPowell’s testimony before Congress, all eyes were set to be on today’s #inflation data, which presumably would help market participants better understand the #FOMC’s policy reaction at its March 22nd meeting.
What a difference a week makes these days! Of course, all eyes are still on today’s data, but now there are many other things we need to consider (such as #FinancialStability concerns), when judging the reaction function of the @federalreserve.
As we have long contended, #markets tend to be fairly myopic and lacking in patience, so having to focus on more than one news item at a time causes tremendous #uncertainty and thus greater market #volatility.