Bloomberg: Fed Easing Without Rate Cut Sets Up Multi-Year Bull Market
Rising U.S. inflation expectations and the new Powell doctrine are a powerful mix that can prolong this U.S. stocks’ bull market for years to come.
The University of Michigan’s survey of U.S. households showed Friday that they expect the inflation rate to reach 3.1% over the next 12 months, near the highest in six years. The consensus from economists is for U.S. CPI to rise at the more benign pace of 1.7% in 2021 and 2.1% in 2022, but the trend for higher prices is clear. Even the bond market shows the large shift in momentum out there, with the U.S. 10-year breakeven rate climbing to 1.78% from ~0.55% in March.
However, the Fed’s historic shift to an “average” inflation goal means the key policy rate will stay put for years to come, as it will take that long to see the required recovery in employment.
What it means for stock markets is that real rates will go even lower without there being a cut to the benchmark rate. Inflation is the input that matters now, rather than policy, and that’s supportive of all asset prices.
Rising U.S. inflation expectations and the new Powell doctrine are a powerful mix that can prolong this U.S. stocks’ bull market for years to come.
The University of Michigan’s survey of U.S. households showed Friday that they expect the inflation rate to reach 3.1% over the next 12 months, near the highest in six years. The consensus from economists is for U.S. CPI to rise at the more benign pace of 1.7% in 2021 and 2.1% in 2022, but the trend for higher prices is clear. Even the bond market shows the large shift in momentum out there, with the U.S. 10-year breakeven rate climbing to 1.78% from ~0.55% in March.
However, the Fed’s historic shift to an “average” inflation goal means the key policy rate will stay put for years to come, as it will take that long to see the required recovery in employment.
What it means for stock markets is that real rates will go even lower without there being a cut to the benchmark rate. Inflation is the input that matters now, rather than policy, and that’s supportive of all asset prices.