This week's Federal Open Market Committee (FOMC) meeting will provide insight into the policy committee's thinking about the post-Brexit economy. Since the last FOMC meeting in June, U.S. economic data has come in consistently stronger than expected and risk markets have rallied. The tightening in credit spreads since the Brexit vote has been dramatic in some sectors of the fixed income market, and U.S. equities have hit new highs. Despite these positive factors, it is likely that the Fed will keep interest rates unchanged and hopefully strike a careful balance of future guidance given the uncertainty of future global growth.
Given the stronger economic data and leading inflation indicators pointing to an uptick, I expect inflation readings to increase. Leading indicators of future inflation have trended upward over the past few months despite the market pricing in lower and lower future inflation readings. This divergence will come to a head over the next six months. In this environment I prefer Treasury Inflation Protected Securities (TIPS) over nominal Treasury bonds.
Tomorrow, Penn Mutual Asset Management will be hosting a ground-breaking event on The State of State Pensions at 12 noon at the Hamilton Garden in Kimmel Center. I will be participating in a panel discussion to explore this issue, along with such distinguished panelists as the Honorable Martin O’Malley (no relation), Former Governor, Maryland; the Honorable Stephen Sweeney, Senate President, New Jersey; and the Honorable Richard Ravitch, Former Lieutenant Governor, New York.
Please join us for the panel, if you can. Register here.
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