The relationship between rates and inflation

The fundamental relationship that is widely accepted today–that interest rates, particularly long-term rates, 1are directly affected by the rate of inflation–was not apparent during the first two-thirds of the past century. This historical reality creates significant implications for the use of historical interest rates prior to the 1960s…or casts doubts as to the relationship between … Continue reading The relationship between rates and inflation

The yield spread continues to reflect easy monetary conditions

Changes in short-term interest rates by the Fed have no effect on stock market P/Es on their own…unless the Fed fails to regulate inflation or avoid deflation. Increases in short-term rates are meant to keep inflation, which drives P/Es and long-term interest rates, at a stable pace. Short-term rate cuts, which are often used to … Continue reading The yield spread continues to reflect easy monetary conditions

GDPNow: 11%

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2021 is 11.0 percent on May 7, down from 13.6 percent on May 4. After Tuesday’s GDPNow update and subsequent releases from the U.S. Census Bureau, the U.S. Bureau of Labor Statistics, and the Institute for Supply Management, the nowcasts … Continue reading GDPNow: 11%