Slow, Slow, Quick, Quick, Slow? Storytelling and the Fed Foxtrot

Eurizon SLJ Capital

In this episode of 'The Long & Short,' Neil Staines from Eurizon SLJ Capital reviews key macroeconomic developments from the past week for professional investors.

• Introduction (ECB Policy and Market Reactions): The ECB’s recent 25 basis point rate cut and modest forecast adjustments underscore its cautious approach amid risks from potential U.S. tariffs. Markets may have overestimated the likelihood of a more aggressive policy shift.
• Bank of Japan (BoJ): The BoJ maintained its rates at 0.25%, signalling continued caution in normalising policy despite rising inflation risks. Wage-price dynamics will be crucial ahead of the January meeting.
• Bank of England (BoE): The BoE held rates at 4.75%, with a surprising dissent for rate cuts, despite slower progress on disinflation (notably in wages). We maintain our weaker growth forecast relative to consensus. Fiscal-monetary dynamics will shape 2025 policy expectations.
• Federal Reserve (FOMC): The Fed’s 25 basis point rate cut was set against a more “hawkish” narrative, slowing the pace of 2025 cuts. Fiscal expansion underpins growth and inflation dynamics, with uncertainties linked to the Trump administration’s fiscal policies going forward.
• Inflation Outlook: Despite lingering shocks in housing and insurance, the Fed is optimistic about returning to target inflation, though higher 2024 inflation and Trump-era fiscal impacts add uncertainty.
• Macroeconomic Evolution: The U.S. fiscal backdrop, characterised by large deficits, has driven economic outperformance and inflation. Expectations hinge on whether a Trump administration would pivot toward fiscal conservatism.
• The Long & Short of it: The macroeconomic trajectory will depend on fiscal policies, setting the stage for further monetary policy adjustments in 2025.

00:00 Introduction and Overview
00:25 Last week
01:56 Land of the Rising Wages
03:17 Land of Hope and … more hope
05:01 Land of the free, and the home of the … unchecked fiscal expansion?
07:54 A Story is not just for Christmas
10:06 The Long & Short of it

The opinions expressed in this podcast are those of the presenters and do not necessarily reflect the views of Eurizon SLJ Capital, Eurizon Capital, or the Intesa Sanpaolo Group. The information and opinions shared are intended solely for professional investors and should not be relied upon by other investors. Please note that the information provided in this recording is for informational purposes only and is not intended to be complete or constitute an offer to buy or sell securities or any derivatives. It has not been prepared in accordance with legal and regulatory requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. It does not constitute research on investment matters and should not be construed as containing any recommendation, advice or suggestion, implicit or explicit, for any investment strategy or financial instruments, the issuers of any financial instruments, or a solicitation, offer or financial promotion relating to any securities or investments. ESLJ and its affiliates do not assume any liability whatsoever for the contents of this podcast and do not make any representation or warranty as to the accuracy or completeness of any information contained in this communication.