Is 2% inflation post post pandemic? With all the changes we’ve seen in this world, is that a realistic target for the Fed? I think it is. Certainly 2% has been the sweet spot to keep the economy humming along. And also if the Fed changed its mandate in the middle of the game, it would certainly lose a lot of credibility. So the key thing is if the Fed is going to maintain a 2% inflation target, it does mean that interest rates are probably going to be higher going forward than what we saw during the period between the great financial crisis and the pandemic. All right, So credibility, we’ve heard a couple Fed speakers mention that we can’t, we can’t change it. We got to stay credible but for investors, how do you play this fed that’s trying to remain credible but is insisting that we get down to 2%. I know one of the areas you’re looking at is mega cap tech this week. We’re going to show a week today chart mega cap tech specifically to Magnificent 7 far outperforming the SMP and even the SMP equal weight. Does that continue to investors continue to go to big tech for safety? Well, it’s interesting how tech’s become a defensive asset in a lot of people’s minds. Certainly if you think about the landscape and even if it is higher for longer, you know certainly tech and valuations for growth stocks in general very sensitive to what you have happening with policy rates. But now wherever we are, we should be within that range. So higher for longer one cut, 2 cuts, you know, we’re not going to be too far off. So the valuation impacts will be minimal. That means we focus on earnings and the outlook for earnings growth for gross stocks in general, frankly, we think it’s still quite positive. All right, Dana, I want to come back over to you. Let’s talk about the federal funds rate. You have actually a forecast that’s pretty interesting just for the audience. The funds rate effectively dictates the cost of money here in the US. So according to your research, from the Great Recession to the pandemic, the average federal funds rate, that was 1.5%. Your forecast is that it’s going to get down to 2.5 to 3.5%. Just for context, right now it’s at 5 and a quarter 5 1/2. I’m throwing a lot of numbers at people, but basically you seem to have a very optimistic outlook on where this federal funds rate is going. Well, we’re not going to get there overnight. It’s probably going to take a few years to get there. But even still, between 2 1/2 and 3 1/2%, that’s higher than the 1 1/2 percent average during the period before the pandemic. And certainly that means the Fed is going to, it could even be higher. And certainly we see a lot of upward inflation pressures that are structural that the Fed is going to have to lean again. Certainly labor shortages, putting upward pressure on wages, geopolitics affecting food and energy prices, and also insurance companies raising the cost of insurance for cars and homes. We don’t know when that’s going to end. So the feds going to have to really lean against that. And so that suggests that over the longer term, we’re going to have to see rates that are higher than what we’re used to. Dana, I got to be honest, you just named all the reasons that we’re not going to get back there. So what gets us there? I mean insurance prices aren’t going to go down anymore. The labor market remains very high in the US Its productivity and growth just seems to churn on. So how do we get to down to this rate? How do we get to the point where the Fed feels comfortable enough to cut? Sure. The good news is that shelter costs, which are a big chunk of both the CPI and the PCE deflator, the latter which the Fed uses to to conduct monetary policy, is slowing on a year on year basis. And we think it’s going to continue to slow and help us get to 2%. How do we know that? Well, if you look at past movements, in the Case Shiller home price index and also more recent readings from rents, they’re all showing that shelter costs are going to continue to slow over the course of this year, but it’s going to take the rest of the year. And that’s probably going to get us back to 2%, hopefully more sustainably. All right, you’re putting a lot on shelter. Daniel, Let me give you the last word. What Now? If you already gave us mega cap tech, I had a guest here in Europe on street signs before Worldwide Exchange saying right now is the time to put money and tips. Where would you suggest that investors put their money to survive this storm, if you will, until we get down to this 2% inflation or if we’re just never going to get there? Well, actually on the fixed income side, we share the view being overweight, longer duration tips in the US So we do see a prospect for those royal yields coming down. They aren’t high levels historically. And on the equity front, actually we’re optimistic on China, Clearly that’s been a tough call over the last year and a half. We think the worst is past us. We know the recent data hasn’t been fantastic, but so we say the bleeding seems to have stopped. We’re not going down anymore. We’re performing in line really with the rest of global equities and perversely if you want to call it the China put When we do get this bad Chinese data, it increases the likelihood the government does more. You know, yesterday we also had a guest that was very bullish on consumer staples, believing that they can pass along price increases even with inflation. Agree, disagree. Well certainly that’s been one of the key surprises over the last couple of years. So you you kind of wonder though, are people that willing now after having come out of lockdown to keep paying higher prices for us that’s probably more of a risk?
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