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Daily Blog

Wednesday, January 17, 2018
Core and headline inflation remain subdued with the Fed’s preferred measure of inflation, Core PCE, remaining slightly below target.

As noted last week, I expect inflation to remain quiescent. Important research recently implies that our current low-inflation environment (since at least 1992) represents a regime change. That is, the current situation relies on a credible Fed. The basic idea is that the economy operates in two different states – high vs. low inflation – and they are not symmetric. High inflation has historically been tied to fast money supply growth, but that does not mean that low inflation is a function of growth in the money supply. It’s the same for ‘slack’ which seems to operate differently in the two states. As a result, Phillips Curve type arguments that low inflation means there will be inflation will continue to be poor predictors of an inflation rebound.
Where does that leave 2018-19? Clearly, we should not slide into a Phillips Curve view of the inflation path, but the FOMC may and we need to be careful about that in our analysis of market dynamics. Former Fed Governor Janet Yellen often called import prices a factor in inflation, but December import prices slid to 3% from 3.3% YoY, despite the rise in energy prices. PPI final headline inflation slid to 2.6% YoY in December. Core PPI fell to 2.3% from 2.4% in November, CPI slid to 2.1% (off from a high of 2.7% YoY in February 2017) with core stubbornly below 2%. This doesn’t look like we are at risk of a take-off in inflation, nor does it look like the Fed has an argument to hike more than is currently expected. It’s a good background still for risk asset. Please take a look at page 60 of the Global Perspectives™ book for more information on inflation. - Guest Blogger: Tim Kearney, PhD

Weekly Commentary & Statistics

Tuesday, January 16, 2018

Stocks had another positive week, finishing strongly across most markets, despite a mid-week pullback on a report that Chinese officials might pare back or halt purchases of U.S. Treasury's. Oil and gold prices rose on the week. The yield on the 10-year U.S. Treasury note climbed from 2.48% to 2.55%.

Monthly Commentary & Outlook

December 2017

In our view, the economy is experiencing a marked shift back to free-market capitalism, rewarding private risk-taking. That inspires growth.

  • Pro-business tax cuts are the icing on the cake of a strong global economy
  • The United States, China and Europe are the “big three” that will drive global growth
  • Amid market complexity, it is best to focus on the ABCs of economic growth
  • Productivity to regain its mojo, even as inflation struggles to regain its luster
  • Currency stability of the big three is the base case but tail risk might wag this dog
  • Global diversification will dominate U.S.-centric investing for a second straight year

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