For the 1st time we are seeing suggestion that while the spike in inflation, largely the product of supply chain issues resulting from a pandemic, may not be "transitory", but that it still may be more of an episodic spike.
Atlanta Fed President Bostic suggested today that there is evidence that with supply chain improvements at some point later this year we will see price pressures ease. This as CPI numbers will be released this week. Rick Rieder, BlackRock's CIO of fixed income, made reference to this closer to transient possibility for inflation as well. Both men making these comments on CNBC this morning.
Given the main impetus for the inflation we've recognized so for, and the understanding that it is the by-product of pandemic created supply chain issues, it is likely that we will begin to recognize, while not transitory, but more of a temporary inflationary set of conditions. This will allow the Fed to devise Fed strategy regarding interest rates that are not reactionary to inflation, but rather a more measured approach to get rates back to reasonable levels.
While this process may still weigh on the equity markets, it will in the longer run be healthier for overall markets and give our fixed income markets new life. We still beleive we are looking at a 10 year rate around 2% and 30 year rate of around 3% (which will happen over a longer period of time). These numbers seem to be the Fed's inevitable goals as we see it.
This all is in the context of a strong economy with a near 7% GDP growth rate which will allow for what we believe will result in a postive growth rate on equiy markets for 2022 overall. However, complicating these suggestions are inflated wage numbers and an under employed work force, or, in fact, a worforce shortage.
We will be keeping an eye on the CPI report this week, and the next Fed reaction after that.
Charter Capital Advisors Research - Blog 2/9/22