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Fed Shifting Focus from Crisis Management to Easy Financial Conditions (PIMCO, 6 min read) PIMCO expects the Fed will continue the current pace of asset purchases till the end of 2020. Yield curve targeting is also a possibility if the market starts to price in a hike following a Q3 rebound in growth. [Bullish Rates]
Revisiting the Monetary Policy Endgame (BlackRock, 5 min read) Permanence of negative interest rates potentially results in the same problems they were designed to prevent (low inflation, low growth). The only viable solution for global policymakers is to focus on creating an environment for ‘profound investment’ in technology (i.e. 5G) to facilitate long-term sustainable growth. [Bullish Tech]
Inflation Regime Roadmap (Man Group, 35 min read) They predict higher average inflation (4%) in DM and, as a result, expect negative real rates over the next decade. One indicator to monitor is the stock-bond correlation, which rises sharply during an inflationary regime and could provide an early signal. [Bullish Inflation]
Inflation with COVID Consumption Baskets(NBER,10 min read) ‘The COVID inflation rate is higher than the official CPI in the US, for both headline and core indices’, and a similar pattern is observed in 10 out of the 16 other countries. Social distancing has also introduced bias in the weights of CPI measurement as consumers are spending more on food relative to transportation. [Bullish Inflation]