As was widely expected, the @federalreserve’s Federal Open Market Committee raised the target range for the Federal Funds #policy rate by 50 basis points (bps), to between 0.75% and 1.0%, and announced the start of #runoff of the central bank’s balance sheet. As previously suggested by the #Fed’s March minutes, the pace of runoff was confirmed today as $95 billion/month ($60 billion in U.S. #Treasuries and $35 billion in Agency #MBS, with a three-month phase-in period.

While there is still considerable uncertainty over the forecast for #inflation, we think both Core #CPI and #PCE inflation peaked in March and February, respectively, and should move appreciably lower by the end of 2022. Throughout the pandemic, strong disposable #income and limited services spending fueled consumer #spending on goods and high goods volumes created #bottlenecks and extreme #inflation.

A few months ago, #markets expected U.S. #inflation to peak by mid-2022 at around 7% to 8% at the headline level and then anticipated that generalized #price gains would decline into year end, closing the year around 4%. However, the tragic war now unfolding with Russia’s attack upon Ukraine has not only sent #energy prices skyrocketing but it has led to much greater uncertainty over #economic growth and #MonetaryPolicy reaction functions, in Europe and indeed around the world.

As violent tragedy unfolds in Ukraine, what may appear as a relative lack of #market reaction in the U.S. belies the great uncertainty, lack of conviction and anemic #TradingLiquidity across #markets today. Indeed, only six times in the last 10 years has top-of-book #liquidity on the #SPX been as low as it has been recently.

With respect to the data, #coreCPI (excluding volatile food and #energy components) came in at 0.6% month-over-month and at a high 6% year-over-year. Meanwhile, headline #CPI data printed at a strong 0.6% month-over-month and came in at 7.5% year-over-year, the greatest increase over a 12-month period since February 1982.

Today’s #inflation report continued to reinforce the theme that gaudy #price gains are not standing in the way of demand. It is a very rare time in history, in fact, most people operating in #markets haven’t seen this sort of demand outstripping supply in the real #economy in their careers, with some areas seemingly depicting a dynamic suggesting that “price is no object.”

Anyone perusing the top articles of major media outlets last weekend would have read several pieces on the extraordinary #shortages being witnessed in the U.S. #economy today, and particularly those in the #labor market. The tone of many articles was pessimistic, suggesting that the #supply-side #shortages and dislocations may be systemic, or long-term, but we think there’s evidence that the U.S. #economy will display considerably greater dynamism and resilience than the pessimists believe.

With respect to today’s #inflation data, core #CPI (excluding volatile food and energy components) came in at 0.24% month-over-month and 4.04% year-over-year and was driven higher by strong increases in the #rent components, which have a tendency to be persistent. Further, headline #CPI data printed at a solid 0.41% month-over-month and came in at 5.38% year-over-year.

September witnessed a somewhat disappointing nonfarm #payroll gain of 194,000 jobs, which was weaker than the upwardly revised August gain of 365,000 and was well below #economists’ consensus estimates of nearly 490,000 jobs. Clearly, there are significant #labor supply issues limiting the pace of recovery. Further, the #unemployment rate declined meaningfully, from 5.2% to 4.8% in Sept, and average hourly #earnings saw gains of 0.62% m-o-m, which brings the measure to 4.58% greater on a y-o-y basis.

As expected, the @federalreserve’s Federal Open Market Committee continued to discuss its plans to reduce, or #taper, the pace of its #AssetPurchase program at yesterday’s meeting. While the details of this discussion were fairly sparse, the Committee statement did state that: “If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted.”

In August we saw #inflation growth moderate further, for the second consecutive month, at least relative to the impressive rate of growth in #prices witnessed around mid-year. Core #CPI (excluding volatile food and energy components) came in at 0.10% month-over-month and 3.98% year-over-year, which was considerably less than the consensus forecast and was driven higher by #shelter components.

It was 73 degrees and sunny in #JacksonHole, Wyoming, today; a perfect day for all those who were there…. Yet, there were no #monetary policy officials present at the traditional location of the @KansasCityFed’s late-summer #economic policy symposium, since they were conducting a “virtual symposium.”

Inflation data for July moderated somewhat, at least relative to the heady pace of recent months, which should temper #market and policymaker concerns a bit, despite the fact that #inflation will stay sticky-higher for a while and the #risk remains to the high-side. Core #CPI (excluding volatile food and #energy components) came in at 0.3% month-over-month and 4.3% year-over-year, a bit less than the consensus forecast, and headline CPI data printed at a solid 0.5% month-over-month and came in at 5.4% year-over-year.

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!

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.

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.

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.

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

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.

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.

The turn of the calendar year invites the temptation to prognosticate regarding the course of the year ahead for the #economy and for #markets, and not being immune to that impulse, here are our views on the “11 themes to consider as we look toward 2021:” bit.ly/386mb0r In preview, one key theme is that 2021’s nominal #GDP growth is likely to surprise many skeptics with its strength. The sources of upside surprise can be found in: 1) the new #fiscal #stimulus combined with structural budget #deficits…