Saturday, December 2, 2023

Reflections from three PIMCO titans of monetary policy

PIMCO brought together three of its leading voices in London, Richard Clarida, Konstantin Veit and Stephen Chang, who offered their views on central banks for the coming months.

The most aggressive monetary tightening cycle in recent history has left investors with some reflections on the past 12 months in the markets. When the Federal Reserve changes its tone of voice in the summer of 2022, with Jerome Powell delivering his own version of Whatever Mario Draghi Needs, few can imagine the speed and height it will reach. interest rates. But even anticipating the level they should reach, the most surprising thing is the consensus How well is the economy holding up under this pressure.

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One of the participants in the list of surprised at the strength of America is Richard Clarida, global economic advisor of PIMCO and vice president of the fed until January 2022. And there is a second remarkable event: how fast the CPI is falling In the USA “According to current forecasts, we will end the year at around 3%,” he stressed.

Despite its negative outlook, Clarida, one of the leading voices of monetary policy within PIMCO and the industry as a whole, highlighted three clouds. First, he understood that the odds of at least a moderate recession are higher than what the market is currently pricing in. Second, there is still a risk that inflation will become more sticky.

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And third, that the US economy has delayed showing the true impact of rate hikes. “In this cycle we are behind by two points. In 2020 and 2022. The economy received a lot of fiscal stimulus, but with a delay. The challenge continues with that salary inflation of 4-6%”, he pointed out.

ECB reaches cruising speed as China supports

On the other side of the Atlantic Konstantin Veit, portfolio manager at PIMCO, says that the ECB has also reached its cruising height. “The big question is how long rates will stay at that level.”, he suggested. In his opinion, he still sees the ECB as concerned about the global side of inflation in Europe. “Inflation remains sticky and under monitoring, but it also shows signs of moderation,” he acknowledged.

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A very different scenario is expected in Asia. As Japan debates ending the anchoring of Japanese government bond yields at 0%, monetary stimuli are expected from China. “The PBOC is currently in support mode, not stimulus” played by Stephen Chang. But the portfolio manager sees the Chinese central bank as more active. “They should continue the accommodative rates. and we still expect the rate to increase and liquidity in the system,” he predicted.

Nation World News Desk
Nation World News Desk
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