Nancy Davis, founder of Quadratic Capital Management:
“The Fed’s rate hikes certainly have an impact on the economy, but not always in the way that people think. The Fed controls short-term interest rates. The Fed knows very well that by raising rates it will slow the economy. Typically, we expect to pay a higher interest rate to borrow money for longer times. That is not the case now. It is impressive how inverted the yield curve currently is. The 2s10s USD swap spot steepness is currently close to -63bps inverted. We believe this is an opportunity for investors who want to benefit from a normalization of the yield curve.”
Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors:
“The market is going to interpret this print as supportive of an easier Fed, and therefore good for risk assets. And on the margin, that’s a fair assessment. However, core CPI is still up close to 6% y/y and close to 4% on an annualized basis. So I don’t think this report alone changes the story that the Fed wants rates much higher because inflation is still too high,” he said. “At the same time, investors should remember why inflation pressures are easing, and that’s because of slowing demand. It’s hard to get too excited about risk assets when the underlying cause is slowing growth.”
Seema Shah, chief strategist at Principal Global Investors:
“Clearly, today’s CPI number is an all-out positive and markets will be rejoicing,” she said. “However, this period will likely be short-lived,” she said. “Make the most of today - for the US economy -- nor markets -- ultimately cannot avoid their fate.”
“Markets have become overly optimistic about the Fed outlook and even the economy,” she added. “But as we get into Q4, earnings growth will show clear signs of struggles and inflation will be easing only slowly, giving markets an important reminder the further rate hikes are absolutely necessary. That should lay the groundwork for renewed market declines.”
--With assistance from Peyton Forte and Vildana Hajric.
This article was provided by Bloomberg News.