All Together Now

Macro Perspectives: Thu 17 Nov 2020

A few weeks ago, at a congressional testimony, Jay Powell talked of "upside risks" to the medium-term outlook - meaning the economy could grow faster and inflation could be hotter than expected.

In yesterday’s post-FOMC press conference, he didn't go there. Even with a large fiscal package coming down the line (now said to include direct payments to people), he focused on deflationary pressures. In line with that dovish message today, Powell has told us many times, throughout the year, that he (the Fed) would want to see sustained inflation above their target, before they consider ending emergency policies. Setting expectations that the Fed will be providing maximum support for years.

With that, we can be assured that at some point the Fed will be forced out of their position, and will be chasing inflation.

It seems pretty clear that's what they want. After fighting against the risk of a deflationary spiral for the better part of the past 11 years, they want to see inflation. Inflation, they can ultimately tame, Deflation is far more dangerous (potentially untamable).

For markets, we can see this policy reflected in asset prices. Global assets have been and continue to be repriced against the currencies that the Fed (and other global central banks) are printing.

With the exception of bonds, as you can see below, there has been virtually no asset left behind.