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Economics
Take a deeper dive into the global repercussions of recent political events and explore the economic forces of inflation, wages, interest rates, taxes, unemployment, and national currencies and their potential effects on investors and policymakers, in the U.S. and around the world.
The Hoover Institution sponsored a conference at Stanford University to commemorate the 50-year anniversary of the Shadow Open Market Committee (SOMC). It was founded by monetarist economists Allen Meltzer, Karl Brunner, and Anna Schwartz in the early 1970s when inflation spiked to a post-WWII high.
Chris Shipley, Dan Carter, CFA, Blake Stanislaw, CFA
Explore how election momentum and economic shifts are shaping market volatility and interest rate expectations. Gain insights into how the Fed’s recent moves and consumer spending trends might impact stocks, bonds, and broader economic growth in the coming months.
China's government recently took policy actions to support economic growth by bolstering the country's property market and stock market. They represent a sea change from President Xi Jinping's previous stance in which he refrained from undertaking bold government stimulus.
Investor optimism has been boosted in the U.S. and China due to recent policy developments—the Federal Reserve's decision to cut interest rates by half a percentage point and an easing of monetary policy and a larger-than-expected fiscal stimulus package in China. Meanwhile, the upcoming presidential election has not had a major impact on financial markets to date. Amid this, we explore portfolio positioning.
The Federal Reserve recently began a new easing cycle by cutting the federal funds rate by a half percentage point at the Federal Open Market Committee meeting. Market participants took the news in stride, as they had expected the Fed to cut rates by that amount rather than by a quarter point.
Chris Shipley, Blake Stanislaw, CFA, Brent Miller, CFA
Gain timely insights into the Fed's larger-than-expected rate cut, learn what to watch from upcoming labor market data, and explore the outlook for mortgage rate movement and investment implications.
Following the soft July jobs report that showed a 4.3% unemployment rate (up from 4.1% in June), some commentators worried that the Federal Reserve had waited too long to ease monetary policy to stave off a recession.
As the U.S. economy remains resilient and inflation shows signs of moderating, the Fed is holding interest rates steady, aiming for a 2 percent inflation target. Meanwhile, the stock market has reached new highs driven by robust corporate profits and AI optimism, although high valuations may limit future gains.
As the Federal Reserve prepares for its next interest rate decision, mixed signals from the labor market present a complex picture. While nonfarm payrolls show strong growth, other indicators suggest a softening job market.
Both Presidential candidates have emphasized the need to restore jobs that have been lost in manufacturing. However, does the focus on increasing manufacturing jobs make for good economic policy?
The debate among investors at the beginning of 2024 focused on how long the economy could sustain above trend growth and whether inflation would continue to decelerate. As we look ahead, most economists have lowered the likelihood of a recession this year considerably amid continued strong economic data, but risks to the bullish outlook remain.
One of the most important debates today relates to the potential impact that generative artificial intelligence (Gen AI) models will have on the U.S. labor market. Some observers see the ongoing process of automation as a harbinger for widespread layoffs, not only for low-skilled workers but also for more highly skilled professionals.
This issue of how effective sanctions are in dealing with recalcitrant nations is being discussed once again amid reports that Russia’s economy is faring better than expected two years after the U.S. and European Union imposed sweeping sanctions on it.
An inverted yield curve, in which yields on longer-dated bonds are below those for shorter-dated instruments, has correctly predicted the last nine U.S. recessions in the post-World War II era. However, this winning streak could be coming to an end, as the U.S. economy has displayed surprising resilience to the Federal Reserve’s tightening during the past two years.
With the U.S. economy performing surprisingly well and the stock market setting record highs, many investors call what is happening the "Goldilocks economy." The main concern now is geopolitical, with the possibility that the Israeli-Hamas conflict could spread throughout the Middle East. However, there is also the risk of a global trade conflict with China that is going unnoticed.
Expect the oil market to remain balanced in 2024 with oil in the low $70s, a level which could have a minor impact on non-OPEC growth. Midstream equities, under such a scenario, should experience some modest volume growth, while upstream producers could see lower cash flows relative to 2023.
What does the January jobs report mean for the strength of the economy and possible implications for the 2024 elections? And how does this impact the debate about whether the economy is headed for a recession?
Financial markets often surprise investors, but the past year defied virtually all forecasts. The prevailing view at the start of the year was that aggressive tightening by the Fed would produce a recession. Instead, economic growth far surpassed expectations at 2.6% according to Fed estimates.
As investors look ahead to 2024, the central concern on their minds is the extent to which the Federal Reserve will ease monetary policy in the new year.
The end of each year is usually a time for reflection about how the economy and markets fared, as well as for assessing future prospects. Normally, the assessments are a blend of both positive and negative considerations. 2023, however, was different.
In anticipation of the upcoming year, investors are eminently focused on a pivotal question: Are the Federal Reserve's interest rate hikes concluded, and is a rate reduction on the horizon for the next year? While interest rate expectations always matter, the gyrations of financial markets – stocks, bonds, and the dollar — have been dominated the past two years by expectations about what the Federal Reserve will do.
While global investors focus on the prospects for the U.S. and China, they should not overlook the euro zone, where the economic outlook has shifted this year. The initial consensus was that Europe would be adversely impacted due to its heavy reliance on Russian natural gas. Instead, the euro zone economy proved resilient, primarily because of unexpected plunges in natural gas prices and crude oil.
The Federal Reserve’s decision to leave interest rates unchanged at the recent Federal Open Market Committee meeting was widely expected, given Chair Jerome Powell and other officials previously signaled the outcome.
Investors have come to accept that the Fed will keep rates “higher for longer.” Meanwhile, prospects for a soft landing have improved as core inflation has come down significantly this year. Still, investors must assess whether the U.S. economy can stay resilient now that interest rates are positive in real terms and economies abroad are weakening.
As China's economy has struggled to gain traction this year, many investors accept that its economic growth rate will be below the government’s official target of 5%, which is reflected in a significant underperformance of China's stock market relative to the U.S. and other global peers in the past four months.
The U.S. economy’s performance this year has been an enigma for many people. Real GDP growth has been stronger than expected, while inflation has fallen more quickly than expected.
The first half of 2023 was full of surprises. Bond yields surged initially and then subsequently fell back in early April when several regional banks encountered problems. By midyear, however, yields had risen again as the economy proved resilient to Fed rate hikes. Meanwhile, the S&P 500 Index, which had fluctuated in a broad trading range since mid-2022, broke decidedly to the upside in the second quarter, reaching its highest level since April 2022.
A question often asked is, how long can the dollar retain its status as the world’s principal currency? There have been numerous occasions when commentators declared an end to the dollar’s dominance—only to be proven wrong.
World trade has slowed over the past five years due to tariffs imposed, supply chain disruptions, the Russian-Ukraine conflict, and, recently, U.S. export controls, which are intended to hinder Chinese advances in technology. The challenge for policymakers now is to find a way to ease tensions before fissures in the global trading system leave it divided.
The Fed is following its standard procedure of separating the conduct of monetary policy, which is geared to achieve low inflation and full employment, from regulatory policy that is intended to preserve financial stability. The view is that monetary policy should not be altered when a financial institution becomes insolvent unless it is systemically important. While this makes sense in theory, there are many gray areas in implementing policy.
The bond market experienced one of the most volatile quarters in history in the first quarter of 2023. There also remains uncertainty about how widespread issues are in the banking sector and how these could impact the economy as a whole. We believe that if a recession does transpire, it will be mild, as household and business balance sheets are strong.
Russia’s invasion of Ukraine caused not only a geopolitical earthquake but also a storm of uncertainty for U.S. investors and the global economy at large.
When President Biden assumed office two years ago, proponents of free trade hoped it would signal a break from President Trump’s protectionist stance. To the chagrin of many, Biden’s trade policy remains a mystery.
This question has surfaced in the wake of blockbuster jobs growth in January. Nonfarm payrolls increased by 517,000 and were accompanied by upward revisions in the two previous months, while the household survey posted nearly a 900,000 increase. They resulted in the unemployment rate falling to 3.4%, the lowest level since 1969. Is this a statistical fluke?
Shockwaves over the debacle to elect Kevin McCarthy (R-Calif.) House Speaker have dissipated by now, but the fallout over raising the federal debt ceiling is just beginning. How will this play out and how will it impact the economy?
2022 was one of the worst years for U.S. stocks and bonds, as inflation spiked to a four-decade high. Looking ahead, the key issue for investors is whether Fed tightening will spawn a U.S. recession. Fort Washington’s Senior Economic Advisor Nick Sargen shares a 2023 outlook for the economy and how we are positioning investment portfolios.
As 2023 gets underway, most forecasts for the global economy are downbeat as central banks combat inflation by raising interest rates. Among developed economies, Europe faces the worst predicament because it is also impacted by a squeeze in natural gas supplies from Russia.
In the wake of the 2022 midterm elections, many observers believe the most likely outcome for fiscal policy over the next two years will be gridlock. This comes after the Democrats enacted major spending programs in the past two years.
During the past year, investors have fixated on how pro-active the Federal Reserve was in tackling inflation. What will happen if the Fed does not retain its 2% inflation target in 2023?
The recent surge in COVID has resulted in partial shutdowns of businesses in several states that threaten to dampen the pace of U.S. economic recovery. What is a reasonable way to break the stalemate?
Economics
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