US real interest rate is more or less zero now and I expect the real interest rate to go to 2% by end of the year. Mild recession that the market is expecting since last year is probably around the corner which will challenge the Fed whether to keep to 2% real rates.
How would we position or VB follows Buffett not going to second guess interest rates?
(Bloomberg Economics)
OUR TAKE: Headline CPI inflation that came in slightly below expectations in March will provide a bit of relief for the Fed. But still-elevated core prices show inflation remains sticky, and recent OPEC+ production cuts suggest the good news on headline inflation is likely to be short-lived.
Shelter should provide a strong disinflationary push over the summer. Even so, given ongoing strength in the labor market and the OPEC+ cuts — as well as pressure from labor-intensive services industries — we expect the FOMC to hike rates by another 25 basis points when it meets next month.
Headline CPI rose 0.1% in March — down from 0.4% in February — slightly below our and the consensus expectation of 0.2%. Year over year, headline CPI rose 5.0% (vs. 6.0% in February), also slightly below our and the consensus forecast of 5.1%.
Core prices rose 0.4% month on month and 5.6% in year-on-year terms, compared to 0.5% and 5.5%, respectively, in February. Both core figures matched our and the consensus forecasts. This was the first time year-over-year core was higher than the headline since January 2021, suggesting the Fed will need to maintain a higher-for-longer posture to sustainably rein in inflation.
Core-goods prices ticked up 0.2% in March (vs. 0.0% in February), and the year-over-year rise (1.5%) was the fastest since December. Prices of new vehicles rose 0.4%, while prices of used cars and trucks dropped 0.9%.
Core services rose 0.4% in March, and the year-over-year rate of 7.1% — while still elevated — was the smallest increase since December. The increase in core services comes mainly from shelter prices, which rose 0.6% over the month and 8.2% over the past year.
CPI inflation remains elevated for core services ex-housing, with prices rising 5.8% year on year. The data indicate ongoing price pressure in labor-intensive services industries, suggesting the Fed will need to cool the labor market to get inflation under control.
(12-01-2023, 09:41 PM)specuvestor Wrote: [ -> ]December CPI came in at 6.5% vs my expectation of 5-5.9% by Dec22. The fluke Aug CPI disrupted the trend and the Fed had hiked more than I expected (fed funds rate to peak 4.5-5%)
Nonetheless it looks like the Fed rates will peak around 5-5.25%. That means Real interest rate will be about zero by April ie CPI to decline to 5% and real interest rate will be 1-2% by August ie CPI will go below 4% by Aug assuming Fed Fund rates maintain at 5-5.25% level
The key would then be if the Fed will cut rates in 3Q, faster than what they indicated and possibly in the face of recession. This is the roadmap I am seeing. Who will blink first?
(29-07-2022, 11:18 AM)specuvestor Wrote: [ -> ]Bearish if CPI is 5-6% end of the year. How full is your glass
Looks like it will be 50bp hike in Sept and 25bp in Nov vs my hope of 50 in July and 25 in Sep for soft landing scenario. Mild recession in 2Q or 3Q should be expected now rather than soft landing. CPI will be below 2% by then. Million dollar question is whether market forecasts this 12 months ahead with the 20-33% decline
(Bloomberg) -- Two bond market giants are diverging on whether the Federal Reserve is doing enough to tame inflation in the aftermath of the central bank’s interest-rate increase on Wednesday.
In one corner, there’s Scott Minerd, the chief investment officer of Guggenheim Partners, which oversees more than $325 billion. He said the Fed’s guidance that it will likely move more slowly through the rest of the year won’t help bring down price growth. He sees inflation ending at still-hot levels this year at between 5% and 6% -- well above the central bank’s target.
DoubleLine Capital CIO Jeffrey Gundlach, by contrast, said this week’s unanimous decision to raise its benchmark lending rate by another 75 basis points means the Fed is no longer “behind the curve.”
(28-06-2022, 01:13 PM)specuvestor Wrote: [ -> ]^^ I think it will trend towards 5% by year end but will it be 5.1% or 5.9% I'm not sure. I try to be roughly right than precisely wrong. Inflation is a lagging indicator: the conundrum of low inflation despite QE has come roaring back with Biden's fiscal package when supply chain was tight. this >8% has roots a year ago. PS on gold context do note that Bretton Wood ended in 1971.
I don't think we will go QT again within next 12 months but Burry's view is inline with what I'm thinking as well. If Fed is credible I suspect they should pause or reduce to 25bp hike by September. Powell doesn't have a good track record though
https://www.investing.com/news/stock-mar...SI-2841333
(27-06-2022, 04:12 PM)specuvestor Wrote: [ -> ]Market corrected sharply on 75bp hike and if July Fed hikes 50bp, market will already be relieved, but still an uphill as we stare at 2Q23 recession.
Freight rates and hard commodity are already coming off. Watch 29th June PCE and June CPI numbers that if it comes off the central thesis remains, except no idea whether Fed will gen-chiong even with CPI trending towards 5% by end of year.
(13-05-2022, 12:50 PM)specuvestor Wrote: [ -> ]US inflation is likely to peak YoY in 2Q22 because of the higher base in 2021 with Powell's famous Transient comment... Market is already looking to Fed hiking 50bp in June and July so recession coming in 2Q23. That's probably baked in by the markets. That's like 200bp hike within 6 months plus QT. Compare that with BoE 4 hikes that started in Dec21 with the FTSE relatively flat (excluding GBP depreciation) and we can see how Powell lost the script AGAIN
The concern is whether they will hike 50bp again in Sept or 75bp prior as Fed might be concerned of CPI sticky at 2-5% even as CPI likely to trend towards 5% by Dec 2022. If Fed hikes 25bp or stay in Sept and decided to wait and see I think markets will be relieved. But I'm concern about how clueless Powell can be.