What we’re reading (5/7)
“Policy Has Tightened A Lot. Is It Enough?” (Neel Kashkari). “We are seeing the power of forward guidance: the FOMC has signaled where policy is headed in the future and markets have adjusted in anticipation of those policy moves, including both expected increases in the funds rate and decreases in the balance sheet. Because the FOMC has strong credibility with market participants, they take our forward guidance seriously, as they should.”
“How You Know When The Fed Has Lost Control” (Global Macro Monitor). “When your fave local coffee house has eliminated the 15 percent gratuity option on Square. That is today relative to a fortnight ago, folks. Racking my brain to find the Gruatity supply chain disruption here. Anyone? Classic case of inflationary expectations becoming deeply imbedded in the economy or is it possibly a relative price shift as political power moves to favor labor vs. Das Kapital? We think a bit of both. Mr. Powell has a lot of wood to chop, if he could chop wood. But can and will he? We suspect today’s stock market mega ramp is not exactly what the Fed wanted. ‘Reducing demand to dampen inflation?’ Total the oppo today, folks. Wealth effect. The Fed needs asset prices lower in the near term.”
“Was The ‘Bond King’ Great?” (Institutional Investor). “He felt he, and his peers, were untested. Since the early 1980s, when he and a handful of other well-known managers got their start, market conditions had been so favorable for bonds that the bond investors couldn’t actually claim to be great — at least not yet. Interest rates were still on a decades-long, relatively steady march lower, which is fuel for higher bond prices. (One of the simpler finance equations: The price of a bond rises as interest rates decline.)”
“Does China Have Hidden Reservoirs Of Growth Potential?” (Noah Smith). “Within the last year, I’ve noticed a distinct souring on the topic of China’s growth prospects among the commentariat. This makes sense, of course. Between seemingly never-ending Covid lockdowns, a protracted crash in the vast real estate sector, Xi’s weird crackdown on internet companies, and the fear of Russia-like sanctions in the event of a conflict, there are now a lot more reasons to worry that China’s amazing catch-up growth story is drawing to an end. In fact, these new stumbles come on the heels of longer-term trends that have relentlessly pushed down China’s growth prospects — slowing productivity growth, reduced opportunities for copying Western technology, and rapidly aging demographics.”
“Companies Are Stuck Between Their Workers And Politicians” (DealBook). “It’s not hard to suss out the reasons that employee activism started to rise. With the government seemingly incapable of action on complex issues that affect the lives of Americans, employees started turning to their companies as institutions with the money and clout to affect change. Companies have financial power, and when they threaten to take action on a political issue, they can get results.”
