Today’s robust #inflation data surprised in its strength and will likely persist in the short-run, and in some areas the intermediate-term, although we think that long-term the @federalreserve is largely correct in identifying real #economy price gains as mostly #transitory.
Much of today’s #inflation is due to reopening factors and supply constraints, but as #SupplyChains normalize from Covid-related shocks and #inventories rebuild, we expect much of the recent inflation will be transitory, with some stickiness in pricing pressure longer-run. Image
That may be especially the case where #inventory levels are harder to build up quickly and continued #demand from higher levels of #growth persist for at least the next year, or so.
With respect to today’s #inflation data, #coreCPI (ex. volatile food and energy components) came in strongly at 0.9% m-o-m and 4.5% y-o-y, above the consensus forecast and again driven higher by used vehicle prices, which rose by 10.5% on the month to hit a 45% gain y-o-y.
In our view, the question of #inflation’s “stickiness” will ultimately depend on the elasticity of supply for goods and services, but in the long run the aggregate #SupplyCurve has been extremely flexible and dynamic, even for #labor.
Hence, we believe it is hard to see a case for the current levels of elevated #inflation turning into “1970s style” runaway #price increases, but where does today’s data leave the #Fed’s policy reaction function?
We’ve argued that policy adjustments that are intentionally late, as the #Fed’s #AverageInflationTargeting goals may end up being, can create distortions in the #economy and #markets that (ironically) risk undermining the very successes that policy has achieved.
Therefore, we think the #Fed should adjust #MonetaryPolicy away from emergency conditions, as this is now distorting the economy and markets, particularly in #housing.
Indeed, purchasing $40 billion a month of Agency #mortgages at inflated prices only continues to overheat a #housing market that is beset by extremely low inventory and consequently surging prices (lower levels of #affordability). Image

• • •

Missing some Tweet in this thread? You can try to force a refresh
 

Keep Current with Rick Rieder

Rick Rieder Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @RickRieder

21 Jul
Great conversation with @MerrillLynch CIO Chris Hyzy, as part of their #MerrillPerspectives event. Some of the topics we discuss follow and the full conversation can be accessed here: ml.com/2021-midyear-e…
On the #market lessons stemming from the pandemic, I suggested that- stepping back- while a lot has been thrown at the #economy and markets over the past 30 years, in every case the #policy response has been critical to evaluate in judging the ultimate impact: policy matters!
That said, we think there is an overestimation of the importance of exceedingly low #policy rate levels to the recovery but maintaining the stability and #liquidity of the financing #markets is critical, particularly at the top end of the capital stack.
Read 10 tweets
17 Jun
At yesterday’s #FOMC meeting, the Committee revealed more expected tightening and further steps toward #tapering #asset purchases than they had previously. We see these as steps in the right direction.
Yesterday’s @federalreserve statement and press conference suggest that the Committee believes progress has been made toward its goals, but that there’s still some room to go to hit the recently re-defined objective of maximum #employment.
Still, it’s now time to set up for the end of this long-running #EmergencyPolicy-focused movie.
Read 10 tweets
1 Jun
In our latest @BlackRock Market Insights commentary we argue that #inflation’s role in the #economic order can be misinterpreted, and therefore that #policy seeking to achieve positive ends can ironically become the means by which those ends are undone: bit.ly/3fyLn4O
Today, policymakers face a set of increasingly critical choices that could end up shaping our quality of life for a generation. Changes to the #Fed’s #inflation framework, without being fully debated, may ironically end up exacerbating the very problems they seek to alleviate.
One might paraphrase the #Fed mandate of full employment and stable prices as being intended “to preserve the purchasing power of as many as possible” – or, to create the best quality of life for the community. So, how do varying levels of #inflation impact that mandate?
Read 10 tweets
27 May
The #economy and #markets today present us with a type of confusing environment: a tremendous growth rebound amid concerns over different forms of #overheating due to policy being late to normalize, and then the uncertainty of an ultimately harsher policy unwind down the road…
… It’s in this kind of environment that we find that what #investors want to do can be very different from what they need to do – the opposite, or mirror image, in fact: bit.ly/3u0nmr9
Over the last decade, the Bloomberg Barclays U.S. High Yield Index has traded in a #yield range of about 4% to 12%, and both those extremes have come during the pandemic period (the last 14 months).
Read 10 tweets
1 Mar
While our February 18th monthly client call argument for rising #RealRates appeared prescient, we were surprised by the magnitude of last week’s #move and would expect a more benign evolution toward #equilibrium going forward.
Taking a stab at periodizing the past year: 1) in Feb/Mar 2020 the Covid crisis was priced into #markets, real #rates spiked higher, #inflation breakevens collapsed and #investors scrambled to raise #cash as the #SPX experienced its fastest 30% drawdown in history.
Then, 2) from Apr through Oct 2020 we witnessed the #market impact of monumental #monetary and #fiscal policy responses to the #crisis, as policymakers successfully sought to force #real rates down and restore #inflation expectations.
Read 10 tweets
20 Jan
The last several weeks have provided abundant drama for #markets to digest, but in our latest @BlackRock Market Insights commentary, we suggest that it’s two recent #publications that might prove more instructive for #portfolio #allocation in 2021: bit.ly/3p39aMo
First, @jasonfurman and @LHSummers make a strong case that lackluster #growth and #inflation in developed #markets may be boosted by targeted #fiscal spending. Over long horizons, the #cash flows that accrue from productive #investments render the #debt incurred sustainable.
Second, @RobertJShiller published a significant update to his widely followed #CAPE model: subtracting the real #yield on #USTs from the reciprocal of the CAPE ratio to show what an #equity #investor may expect to earn over #risk-free #bonds, in real terms based on #market price.
Read 5 tweets

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!

:(