Markets doubt the US Federal Reserve’s inflation objective is symmetrical, so we explore possible remedial changes to the framework for monetary policy. This issue also questions the value of the yield curve in predicting recessions, explains the phenomenon of ‘superstar’ companies and observes how markets are currently torn between fears about growth and the knowledge that a helping hand is near.
Struggling for some time now to hit its inflation goal sustainably, the Fed may move to average inflation targeting, or even temporary price level targeting, in its upcoming strategy review; such a shift would have market implications.
What predictive information does the yield curve usefully yield? An assessment of its credentials suggests it is a flawed mirror: investors seeking to understand where the economy is heading may be better off concentrating on the fundamentals.
The forces driving the surging growth of superstar firms look set to persist. If these firms’ wings aren’t clipped by regulatory or consumer reaction, their increasing market dominance could exacerbate already mounting societal divisions.
With the structural direction of equities unclear, we prefer to be neutral in the medium to long term. We are structurally underweight in fixed income as we foresee gradually rising inflation and further monetary policy normalisation.
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