I had the opportunity to discuss my year-ahead outlook on the latest Wall Street Journal “Take on the Week” podcast. We covered a broad range of issues, including the outlook for inflation, Federal Reserve (Fed) policy and bond yields; the uncertainty surrounding the new administration’s policies and the potential impact of tariffs and immigration restrictions; the fiscal deficit and its implications for issuance and yields; the outlook for the dollar and a lot more.
A few highlights:
- Given sticky inflation, recovering productivity and a strong economy, Fed funds rate is already in the neutral range. The Fed has to claw back prudence now, and I think it will likely stay on hold for the first half of the year and might well be already done with rate cuts.
- My baseline is for inflation to end the year around current levels. Much will depend on how the policy mix shapes up: tariffs and immigration restrictions could put some temporary pressure on inflation, but streamlining of regulations and greater government efficiency should have the opposite impact, as well as boosting growth.
- There is quite a bit of cognitive dissonance in the proposed policies: persistent loose fiscal policy points to higher rates, not lower; and tariffs would contribute to a stronger dollar, not weaker.
For a detailed and lively discussion of these issues and more, here is the link to my interview with the Wall Street Journal: WSJ Take on the Week: Will the Fed cut interest rates again? What investors should know.
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