Please listen to our weekly podcast summarizing our July 13th note and consider becoming a paid subscriber, if you are not already, to read the full report We expect the Fed to cut rates 25bp in July, pull forward the end of balance sheet contraction and later this fall change their inflation target from 2%, to an average of 2% through the cycle. Not to be outdone, the ECB will change forward guidance from time dependent to inflation contingent, restart QE and cut rates while also changing their target from 2% or below, to a ‘symmetric’ 2%. Investors will undoubtedly cheer the signaling effect without regard to the inevitable policy normalization risk off event – this cycle has had eight - as well as the risk of exchange rate instability. In the near term the Fed will ease into an improving economic outlook and equities will likely push higher still. In our view equities would have rallied without easier policy, earnings growth is likely to accelerate in 2H19 and the market is discounting the rebound just as it discounted peak growth during strong reporting seasons in April, July and October 2018. Both the ECB and BOJ’s balance sheets are in the early stages of expanding again, the Fed may decide to allow its balance to expand alongside growth in currency later this year as well.
Moving the Goal Posts Podcast
Moving the Goal Posts Podcast
Moving the Goal Posts Podcast
Please listen to our weekly podcast summarizing our July 13th note and consider becoming a paid subscriber, if you are not already, to read the full report We expect the Fed to cut rates 25bp in July, pull forward the end of balance sheet contraction and later this fall change their inflation target from 2%, to an average of 2% through the cycle. Not to be outdone, the ECB will change forward guidance from time dependent to inflation contingent, restart QE and cut rates while also changing their target from 2% or below, to a ‘symmetric’ 2%. Investors will undoubtedly cheer the signaling effect without regard to the inevitable policy normalization risk off event – this cycle has had eight - as well as the risk of exchange rate instability. In the near term the Fed will ease into an improving economic outlook and equities will likely push higher still. In our view equities would have rallied without easier policy, earnings growth is likely to accelerate in 2H19 and the market is discounting the rebound just as it discounted peak growth during strong reporting seasons in April, July and October 2018. Both the ECB and BOJ’s balance sheets are in the early stages of expanding again, the Fed may decide to allow its balance to expand alongside growth in currency later this year as well.