US inflation and the Fed shock: how to manage portfolio


US inflation and the Fed shock: how to manage portfolio

The bad news is that US inflation has accelerated again, jumping to a new record since February 1982. The news not really nice, but which gives some comfort, is that the rise, at least in the headline data, was not higher than analysts expected.

In fact, in December, the U.S. Consumer Price Index jumped at an annual growth rate of +7%, compared with +6.8% in November.

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On a monthly basis, however, growth was higher than expected, equal to +0.5%, compared to +0.4% expected. More than expected was also the annual increase in the core component of the data, or the index purified by food and energy prices, core inflation, advanced by 5.5%, compared to +4.9% previous, against +5.4% expected.

More than expected, finally, the growth of core inflation on a monthly basis, equal to +0.6%, against the +0.4% expected.

The picture, therefore, is not reassuring: inflation, in the States, runs. However, there is hope that the peak of inflation is near, as noted by some economists interviewed by Cnbc. Economists like Luke Tille, chief economist at the Milmington Trust, who said that, "at some point over the next couple of months, inflation will have tested its peak, either in December or during the first quarter. We expect inflation to slow in 2022. "We expect prices to rise more slowly in 2022 than they did in 2021.

On the other hand, Tille said, "the stimulus (whether fiscal and/or monetary) is not the same as last year. We also expect weaker spending, in the face of supply problems that will not have yet been fully resolved that, in the case of some approval chains, will have passed the critical phase".

Inflation also scares the Fed: Powell & Co are hawkish

Of note is the roundup of statements-alerts on US inflation of the last hours. The statements of the president of the Federal Reserveome Poellell reiterated that the US economy is in a position to endorse a more restrictive monetary policy: "during this year…"if the situation develops as expected, we will normalize (monetary) policy, which means that we will end our asset purchases in March, which means that we will raise rates later in the year - said Poell

"If we see that inflation will persist at high levels for a longer period of time than expected, then if we have to raise rates more, then we will. We will use all our tools to get inflation back" to acceptable levels.

Before him, several Fed officials took the floor, most notably Atlanta Fed number one Raphael Bostic in an interview with Reuters; Kansas Federal Reserve Chairman Esther George; Cleveland Fed number one Loretta Mester.

US inflation and the Fed shock: how to manage portfolio

The tones of the three Fed members were all Haish

Bostic specifically said that, "if things continue to go the way they are going, it will be reasonable to start raising rates in March".

"There is a risk that inflation will remain high for a long period of time," he said, noting that he expects three rate hikes in 2022. "The Fed needs to act directly, clearly and aggressively, and there needs to be a rapid reduction in its balance sheet," Bostic said.

To push for a faster cut of the Fed's balance sheet was the other Fed member, the number Esther George:

"Personally, I would prefer a decision to reduce the balance sheet (worth $8.8 trillion) sooner than later, in conjunction with the removal of accommodative monetary policy measures," he said. Cleveland Fed President Loretta Mester also called for a first rate tightening in March:

"Inflation is more persistent, with price increases becoming widespread," he said. Mester added that he believes interest rates will be raised three times in 2022, and stressed that "there are solid reasons to withdraw accommodative measures".

Inflation does not break down Dimon (JP Morgan)

Am Amie Dimon, number one of Morgan P Morgan, also spoke about tighter monetary policy on the part of the Fed, in an interview with Cnbc, on the occasion of the 40th Healthcare Conference inaugurated by the US banking giant, the 40th Annual Morgan P. Morgan Healthcare Conference.

According to Dimon, the U.S. economy will grow this year at the strongest pace in decades, probably at the best rate since the Great Depression, even if the Federal Reserve raises rates more than markets expected.

Commenting on the Goldman Sachs economists ' outlook of four Fed tightening ,p Personally, I would be surprised if there were only four rate hikes".

Keep an eye on the reaction of Treasuries rates, with ten-year ones that, from 1.51% at the end of 2021, rocketed a few days ago to above the 1.80% threshold for the first time since January 2020, thus returning to levels prior to the Covid-19 pandemic. Read also

Treasuries rates: the Bang of early 2022 is the strongest in twenty years. Fed ready to attack anti-inflation. Someone sees more than three narrow

Not long to return to the levels 1.95% -1.97% tested in November and December of 2019: analysts advise to pay attention to the psychological level represented by the 2% threshold.

The jump in rates was triggered both by the Fed's more ha - Kish tones, which emerged with the publication of the minutes relating to the last meeting of 2021 - complete with shock statements on the Fed's balance sheet - and by the publication of the December US employment report, which showed that average hourly wages - an important thermometer of the inflation trend-jumped in December, on an annual basis, by 4.7%, to the record of recent decades and over the +4.2% estimated by consensus. On a monthly basis, growth amounted to +0.6%, over the +0.4% expected.

Inflation and volatility: the challenges of 2022

About inflation and volatility spoke Pio Benetti, Head of Discretionar Mand Mandates, and Massimo Trabattoni, head of Italian equit di of Kairos, who meanwhile offered an analysis on the financial markets of these first days of the year, in the video duet "inflation and volatility: the challenges of 2022":

"2022 - Benetti and Trabattoni have pointed out-opens in continuity with the year just ended, with inflation dominating the scene and causing violent movements and sector rotations. Certainly we will have a more liquid market than it has been in past sessions and we will therefore have to learn to live with a narrative deriving from movements related to flows. It will therefore be important to withstand the volatility and read the underlying movements in the most appropriate way, trying to seize the opportunities that can be exploited with a disciplined investment process".

So Pio Benetti:

"For financial markets, January 2021 was considered the thirteenth month of the previous year. January 2022 re-proposes the same theme: the tug-of-war between central banks, markets and commentators with reference to inflation takes place again. Inflation rises for many reasons that we know and it is not necessarily said that monetary policy today is the most effective tool to combat it. In this sense, the debate is very deep, very open and then unloads on the markets with movements that are also quite violent under the surface of the indices, looking at the performance of the sectors. The sure confirmation is a rise in interest rates that still remain quite negative in real terms and this clearly has a whole series of consequences for risky assets".

"Certainly - explains Benetti-we get a little more into the alive in these days, we will have a certainly more liquid market than it has been in past sessions. And it is equally true that we must learn to live more and more with this often disconcerting mechanics of investing between indexing and tools that work for basket. So the narrative of what happens in the market actually often follows movements that are essentially linked to flows. And precisely on flows it is worth remembering that the past year has been a record year for flows on the stock market and can only be so, considering that unfortunately there is still no real and effective alternative in terms of investment especially when we try to protect against inflation. In this sense we are positioning our portfolios therefore with a very very low duration and a consistent equity exposure trying to seize the winning themes time by time".

For his part Massimo Trabattoni expressed himself as follows:

"It was a beginning of the year that represents a somewhat follow-up of the main themes that we addressed the previous year. This beginning of the year is marked by a market without volumes and with a very high cross-sector dispersion. There are movements that have taken us a bit' on the counterattack, many reasoned, or not very reasoned say, more textbook of the young manager - if rates go up sell a certain sector and buy another - when then instead we have to go to see the real reasons behind the rise in rates, with which we will have to live all year".

"The inflationary spike - Trabattoni continued - is another factor that will accompany us, but it is not said that there are losing sectors and always winning sectors. Technology has all been penalized,but there may be situations where maybe the pricing Poer All of these considerations I think will come in the coming weeks. Today the market has only made the first assessment. We manage in funds in continuity. Clearly then the performances always look 1.1-31.12. Our funds are flexible and so we try to take advantage of this flexibility approach, but it is clear that the portfolio you have at 31.12 is not that it changes completely from January 1. What has been seen on the Italian side is basically an index that, for the large cap part was certainly among the best in the world, still in these first days of the year, while the part that last year was winning that is the mid cap, the Star, these indices of medium-small companies that are really Made in Italy, have important negative signs".

"Now, our portfolios - Trabattoni continued - have suffered a little bit perhaps from the presence of a lot of "Real" Italy then of this second part of mid cap which is the strength of the Italian economy, but we are convinced that the selection that we have made and that we are continuing to make will reward us already in the coming weeks. At the level of hedges we keep them very high in terms of put protections that are present on all funds because clearly the markets are very high and these variables that put a little volatility are variables that we cannot underestimate. We are about to face a particularly complicated year and therefore it will be necessary to be patient even in enduring volatility and to read the underlying movements in the most appropriate way, trying as far as possible to seize the benefit of markets that clearly cannot continue to rise forever, but still present opportunities that can be exploited with a disciplined investment process like ours".

Michael Zippo


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