What we’re reading (8/24)
“Is Value Just An Interest Rate Bet?” (Cliff Asness, AQR). “It seems obvious to so many that interest rates drive the value trade. After all, growth stocks have much longer-dated cash flows than value stocks and thus should be a “longer duration” asset and move more with longer-term interest rates, right? “Growth (or often just 'tech') stocks soar on plunging interest rates” (or vice versa) has become a common wise-sounding observation in the last few years. In fact, this is all taken as an axiomatic given in countless pundit and press observations. However it’s not nearly that simple, and mostly it’s just not true.”
“What Wall Street Hopes To Hear From The Federal Reserve At Jackson Hole” (CNN Business). “Whether the market will get the feel-good story it wants, or remarks that throw cold water on those hopes, is an open — and hotly debated — question. ‘What they are hoping to hear from Jay Powell is that the Fed will move to reduce inflation, but will be sufficiently confident that it can reverse course early next year. I don't think they're going to hear that,’ said Randall Kroszner, a former Fed governor and deputy dean for executive programs and economics professor at the University of Chicago Booth School of Business.”
“Jerome Powell’s Dilemma: What If The Drivers Of Inflation Are Here To Stay?” (Wall Street Journal). “Central bankers worry that the recent surge in inflation may represent not a temporary phenomenon but a transition to a new, lasting reality. To counter the impact of a decline in global commerce and persistent shortages of labor, commodities and energy, central bankers might lift interest rates higher and for longer than in recent decades—which could result in weaker economic growth, higher unemployment and more frequent recessions…This new era would mark an abrupt about-face after a decade in which central bankers worried more about the prospects of anemic economic growth and too-low inflation, and used monetary policy to spur expansions. It also would be a reversal for investors accustomed to low interest rates.”
“America’s Growth Challenge” (City Journal). “What explains the combination of a robust labor market and a slow-growing economy? Part of the answer lies in long-term developments in the U.S. labor force…A growth rate of around 2 percent per year, or less than half the rate of the 1960s, appears to be the new normal. If the economy had kept growing over the decades at those earlier rates, then real GDP in 2022 would be more than double its current level. Lackluster growth goes a long way to explain income inequality, stagnant wages, and perhaps even the sour mood of the American electorate.”
“What’s Hollowing Out the US Workforce?” (Michael Strain, Project Syndicate). “[U]nfavorable demographics do not explain the entire drop. People in their early twenties are 3% less likely to be in the workforce now than they were when the pandemic began. And for people in their ‘prime working years’ – ages 25 to 54, when they are generally too old to be in school but too young to be retired – the rate is 0.7 percentage points lower than it was in February 2020.”
