Inflation Protected
Most Fed and pundit assessments of inflation expectations are overly narrow, focusing too much on long-term market-based measures. We favor a more qualitative approach that asks whether the inflation outlook is influencing household and business decision making.
We review our Model Bond Portfolio performance for Q2 and look ahead as fixed income markets move beyond the US-Iran conflict, which is finding its kinetic equilibrium. Valuations and growth differentials are moving against continued US Treasury outperformance.
Kevin Warsh announced an ambitious reform agenda for the Federal Reserve. We discuss the potential impact and the current outlook for interest rates.
May CPI data show no evidence of passthrough from energy prices to core inflation. This will keep the Fed on hold for the time being.
The April CPI report showed clear evidence of the direct effect of higher oil prices on inflation but, so far, limited evidence of passthrough to core.
So far, there is no evidence of second-round effects from the oil price shock showing up in the US economy. Fed rate hikes are off the table unless those effects emerge.
FOMC participants are coalescing around the idea that the funds rate will stay on hold for some time, an outcome that is now well priced in the bond market and that will not materially change under a new Fed Chair.