Disinflation Pipeline and the Phillips Curve Fed
Jack Janasiewicz offers his tactical take on the capital markets in this podcast recorded on January 5, 2023.
- Global central bank policy and inflation were the key issues in December, as November Consumer Price Inflation data in the US surprised to the downside.
- Inflation is still high, and while there is more disinflation in the pipeline, the Federal Reserve is not close to declaring victory.
- US interest rates are likely to remain higher for longer, as this is a Phillips Curve Fed that links inflation and the unemployment rate together – and the labor market remains stubbornly tight.
- Policy changes by the Bank of Japan also reverberated through the global bond markets as the BoJ allowed its benchmark 10-year bond yield to move slightly higher.
- Meanwhile, the European Central Bank raised its deposit rate by 50 basis points, as expected – but indicated that rates would need to keep rising to combat high inflation.
- This global divergence in central bank policy will likely lead to differentiated growth outcomes for various regions – and across asset class returns.
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