Monetary
Clients are increasingly more positive about the US economy, but there are no signs of exuberance. The rally could continue as the majority is not fully invested. Financial conditions have already eased, and the Fed is unlikely to surprise on the upside but will deliver a promised cut this summer. CRE is a still pain point of the US economy. We are not bearish, but after a fast and furious rally, markets are fragile.
This week, we review our currency positions, based on the latest data from G10 economies.
Many investors have cited the 1994 tightening cycle as an example of how the Fed managed to raise rates without triggering a recession. However, the unemployment rate was 6.5% in early 1994, which meant that inflation was less of a risk than it is today. Productivity growth also accelerated starting in the mid-1990s. While something similar may happen again thanks to AI, so far this is not visible in the aggregate productivity data.
Expected inflation has surged to its highest level in a year. This has surprised many people, but expected inflation is behaving just as expected. Expected inflation is not a prophecy, it is just a mathematical function of delivered inflation. We discuss what this means for central banks in the US, UK, euro area, and Japan. Plus: bitcoin’s structural uptrend to $100,000+ is still intact.
