The excellent Steven Blitz at TSLombard.
- High frequency data have taken a turn toward recession
- March CPI matters for headlines but not policy – Fed hikes 25BP in Mar
- Real yield question ties to Capex/Profits, net of replacement
CPI is probably the least important data release this week, simply because its recent upward momentum on a rolling three-month basis renders moot the policy impact from any softening in March. It takes more than one month to change the Fed’s mind, and ultimately it will take rising unemployment. Circumstances eventually stay the Fed’s hand, something the FOMC has been hoping for all along, and these circumstances are building away from the rebalancing of bank balance sheets. It is worth noting that the high frequency data I look at do not suffer from low
response rates, unlike much government data. Beyond the coming downturn, when cutting the funds rate to restore growth becomes the tack-du-jour, the still unanswered question is whether firms will increase capital investment net of depreciation relative to profits. It is a big issue for understanding the years to come, now that the IMF has declared its view (aligned with the Fed model) that inflation and interest rates return to pre-Covid levels under the weight of demographics, technology, and sustained global sourcing of labour and production. I disagree.
