“1970s shadow of declaring victory over inflation too soon continues to looms large”: Jon Day, Newton IM

by | Feb 8, 2024

inflation

Commenting on the US governments biggest-ever sale of 10 year debt, Jon Day, global bond portfolio manager at Newton Investment Management, said:

“Yet again, the US Treasury is asking investors to buy bonds at a rate 1% less than the cash rate. There are no signs that the somewhat relentless supply of Treasuries will cease any time soon, with US fiscal deficit still running at 6% of GDP.

“However, markets are anticipating a Fed rescue, with five rate cuts priced in over the next year.  At Newton, we are certainly more sceptical; financial conditions have eased significantly since the Fed dropped its hawkish language.  The easing of conditions is now showing up in data, as evidenced by both strong employment data and Services ISM in the last week.  

“The Fed has signalled three rate cuts, and given the rebound in data, it is difficult to see them cutting more than that – the 1970s shadow of declaring victory over inflation too soon continues to looms large”.

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