Post Tagged with: "interest rates"

Yellen: The relationship between the slope of the yield curve and the business cycle may have changed

Yellen: The relationship between the slope of the yield curve and the business cycle may have changed

The biggest takeaway from Chair Yellen’s press conference was her belief that there is “reason to think the relationship between the slope of the yield curve and the business cycle may have changed.” To me, this suggests that some Fed officials will be inclined to disregard a flattening yield curve as a market signal. Some thoughts below

Read more ›
Minsky’s financial instability hypothesis and the Fed’s reaction function

Minsky’s financial instability hypothesis and the Fed’s reaction function

As the Federal Reserve meets today to decide how to communicate its messaging on future rate hikes and balance sheet reduction, financial stability will play a key role. The risk of overheating was real. So let’s put some framing around this issue and ask how the Fed reacts as the data come in down the line.

Read more ›
As the Fed meets, expect expansion through 2018, but problems thereafter

As the Fed meets, expect expansion through 2018, but problems thereafter

Given where we are right now, I think this expansion will continue through the end of 2018. And I want to talk about what that means in the context of my last post and recent BIS warnings on financial markets.

Read more ›
We are in the most dangerous period in the business cycle

We are in the most dangerous period in the business cycle

Why would I be writing about ‘danger’ when we are experiencing the first synchronized global economic upturn in over 8 years? It’s the business cycle.

Read more ›
No, the Treasury curve isn’t flattening because the ECB and BoJ are ‘printing money’

No, the Treasury curve isn’t flattening because the ECB and BoJ are ‘printing money’

My model of interest rates and currencies says that long-term yields are just an amalgam of short-term yields with a term premium tacked on. There’s nothing there about money flows from people moving money to where yields are highest. I think this matters when thinking about what the flattening yield curve signals as central banks begin to tighten globally.

Read more ›
Why the flattening yield curve doesn’t worry me yet

Why the flattening yield curve doesn’t worry me yet

If you look at the yield curve since the early 80s double dip recession, what you’ll notice is that inversion – where 2-year rates exceed 10-year rates – precedes every recession. Right now, we’re still 70 basis points from inversion though. So far from expecting a slowdown or a recession, I would sooner expect economic acceleration. Let me go into detail below.

Read more ›
Policy divergence revisited

Policy divergence revisited

Three years ago, the Fed had begun tightening and all other central banks were still on easy street. Now, we are at an inflection point where other central banks are likely to tighten more than the Fed. That’s negative for the US dollar and positive for longer duration US Treasuries.

Read more ›
Some thoughts on full employment and this asset-based economic recovery

Some thoughts on full employment and this asset-based economic recovery

I see that Dartmouth economics professor Danny Blanchflower is talking about slack in the US labour market because he believes the Fed is premature in assessing its full employment mandate as fulfilled. I have a few thoughts on this issue I want to flesh out below and the crux of my narrative revolves around the over-dependence on monetary policy as a policy lever.

Read more ›
An anecdote on the German housing bubble

An anecdote on the German housing bubble

I don’t know if there is a German housing bubble or even whether there will be one. I do know that we hear a lot about it in the press – the result of zero, even negative, interest rates. So let me give you a little anecdote from my trip to Germany last week.

Read more ›
How the Fed handles financial stability is key to avoiding a crisis

How the Fed handles financial stability is key to avoiding a crisis

I’ve got two objectives here. One is to talk about the Fed and the other is to discuss the evolution of the US economy. Most of what I want to say is upbeat, both on the Fed and the economy. And I’ll lead with that. I do have some doubts about the long-term though – and I want to give […]

Read more ›
OLYMPUS DIGITAL CAMERA

Baumol’s cost disease, aging societies and inflation expectations

Quick hit here. I have been banging on about lowflation, repeatedly suggesting it is here to stay. The Fed, on the other hand begs to differ and is pre-emptively normalizing rates, as a result. No matter how you look at this, there’s a rub though: We all consume different products, so we each experience a different individual inflation rate. Even […]

Read more ›
The wisdom of crowds and government bond markets

The wisdom of crowds and government bond markets

When you look at how markets are positioned, it’s clear that a lot of people see continued low growth for years to come – a veritable Japanification of the US economy. I hope this is one of those times that markets are wrong. But I am not willing to bet on the hope, just the opposite.

Read more ›