March 16, 2021
Market participants have been focused on the prospects for a sharp rise in U.S. inflation amid massive fiscal and monetary easing and a COVID-19 vaccination program that continues to gather pace. Our view is that inflation will generally remain subdued in coming years, allowing the Fed to point to cumulative shortfalls from its two percent goal to support delaying the start of policy tightening.
Incoming data support our view that underlying inflation is slowing, not accelerating. The release of CPI data for February last week showed that core inflation decelerated to just 0.7 percent on a three-month annualized basis from 1.0 percent in the three months ending in January. As seen in the chart below, this is one of the lowest prints we’ve seen in the last several decades.
Source: Guggenheim Investments, Haver Analytics, BLS. Data as of 2.28.2021. Shaded areas represent periods of recession.
The passage of $1.9 trillion in fiscal stimulus last week certainly bolsters the growth outlook, but we believe that our out-of-consensus view on inflation will be validated once 1) we get through the next few months of noise from base effects in the year-over-year numbers and 2) the lagged effects of the 2020 economic contraction begin to show up in the cyclical components of core inflation.
As the chart below illustrates, the typical post-recession weakness in the most cyclically-sensitive components of core PCE inflation is just beginning. The full impact on core inflation from last year’s sharp decline in activity will take several more quarters to be felt, given the historical tendency for core inflation to lag real GDP growth by 18 months.
Source: Guggenheim Investments, Haver Analytics. Data as of 1.31.2021. Shaded areas represent periods of recession.
In light of our inflation views—and given the recent backup in Treasury yields—we believe that the balance of risks is skewed toward lower bond yields, particularly in the front end and belly of the yield curve.
From the Office of the Global Chief Investment Officer, Scott Minerd
By the Guggenheim Investments Macroeconomic and Investment Research Group
This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.
This material contains opinions of the author or speaker, but not necessarily those of Guggenheim Partners or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. Past performance is not indicative of future results.
Guggenheim Investments represents the following affiliated investment management businesses: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Fund Management (Europe) Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management.
Signposts for credit investors as the next recession approaches.
Deeper losses for equities may lay ahead.
Relative value and performance drivers across fixed-income sectors.
VIDEOS & PODCASTS
Scott Minerd, Chairman of Investments and Guggenheim Partners Global CIO, joins Bloomberg TV on Fed Day to discuss the Federal Reserve’s largest rate hike since 1994.
Managing Director Justin Takata discusses the technical and fundamental drivers of value in investment grade corporates, and U.S. Economist Matt Bush addresses recession timing and the possible progression of policy.
You are now leaving this website.Guggenheim assumes no responsibility of the content or its accuracy.
Your browser does not support iframes.
2022 Guggenheim Partners, LLC. All rights reserved. Guggenheim, Guggenheim Partners and
Innovative Solutions. Enduring Values. are registered trademarks of Guggenheim Capital, LLC.
how your browser accepts cookies; please see your browser help documentation for more