Previous post Next post

Cool Video: Bloomberg Economic Discussion

I joined Chris Wolfe from First Republic Wealth Management on the set of Bloomberg’s Daybreak to discuss market developments and the outlook for the US economy. We generally agreed that while the economy is slowing it is doing so from unsustainably strong levels. We also are both highly convinced that the Fed will increase rates later this month, and anticipate two hikes next year.  Investors, understandably with scar tissue from the Great Financial Crisis, fear that the end of the business cycle will be another credit crisis.

The market never accepted the Fed’s contention that three rate hikes in 2019 would be appropriate. Even this forecast of three hikes represented a moderation from the four hikes it anticipated this year. The real debate has been not whether the Fed pauses next year but when. Now, even the two hikes that the Fed funds futures had largely priced in have been taken back. Indeed, indicative pricing suggests the market sees the Fed likely pausing at the start of 2019. It is as if the market is bringing forward the end of the business cycle from 2020 to 2019.

Marc Chandler and Chris Wolfe on set of Bloomberg's Daybreak

Marc Chandler and Chris Wolfe from First Republic Wealth Management on the set of Bloomberg's Daybreak - Click to enlarge

Those who see the Fed pausing in Q1 19 appear to be basing their arguments on the slowing of the economy, moderation in price pressures, or trade tensions. The economy has been growing above trend, of the rate that Fed officials see as the long-term non-inflationary pace, which is closer to 2% than 3%. Provided the economy is growing faster than the trend, it is absorbing spare capacity and creating conditions that can lead to an increase in the general price level. With near full employment and above-trend growth, and importantly though often forgotten, when adjusted for inflation, the Fed funds target rate is below inflation. Headline CPI was 2.5% in October. It is also averaged 2.5% this year. The current Fed funds target is 2.0% to 2.25%. In the past, it has taken a negative real Fed funds rate to provide the financial conditions that end an economic contraction.

Chris Wolfe and I did not put too much weight on the recent losses in the S&P 500. We agree the underlying macro backdrop has not deteriorated as much as sentiment. I suggest the importance of 2600 in the S&P 500. The 3.5-minute clip can be found here.

 

 

Full story here
Marc Chandler
He is Global Head of Currency Strategy of Brown Brothers Harriman (BBH). He has been covering the global capital markets in one fashion or another for 25 years, working at economic consulting firms and global investment banks. He regularly appears on CNBC and has spoken for the Foreign Policy Association. In addition to being quoted in the financial press daily, Chandler has been published in the Financial Times, Foreign Affairs, and the Washington Post. BBH provides specialist services and innovative solutions to many Swiss asset managers that include a global custody network of close to 100 markets, accounting, administration, securities lending, foreign exchange, cash management and brokerage services. Feel free to contact the Zurich office of BBH
Previous post See more for 4) FX Trends Next post
Tags: ,,,

Permanent link to this article: https://snbchf.com/2018/12/chandler-cool-video-bloomberg-economic-discussion/

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

This site uses Akismet to reduce spam. Learn how your comment data is processed.