As the Federal Reserve begins to taper its bond-buying program, announced yesterday, several Money and Markets analysts said they don’t expect inflation to pick up anytime soon. That may help to temper rising interest rates, keeping intact the bull market in stocks.
“Commodity prices across the board are hitting new lows,” said Mike Burnick, and recent indicators — producer prices and consumer prices — show no inflation. “That shows that disinflation still has the upper hand.”
In fact, many analysts expect the Fed to continue its quantitative-easing program because inflation is below its target range. The Fed Wednesday said it would cut the program by $10 billion a month to $75 billion a month.
Douglas Davenport, editor of the All-Weather Investor and Inflation Survival Strategy services, pointed to technical indicators that show no signs of inflation.
Still, he expects bond yields to rise, as does Safe Money Report Editor Mike Larson, who sees much stronger signs of an economic recovery in the U.S. and Europe.
“I think this economy is a lot stronger than people give it credit for,” Larson said on a conference call with other Money and Market analysts, citing recent reports such as housing starts, which had the biggest monthly increase since 1990.
Larson sees bond yields rising in response to the data.
The last time the economic data looked like it does now, 10-year yields were at 4.5 percent to 5 percent, and they are now around 3 percent.
In the Fed, “I think we’ll hear doves tone down their dovishness and the hawks turn up their hawkishness as the economic data comes out,” Larson said.
That’s not necessarily bad for stocks, Larson said. “Rates have a lot of room to move before they start biting.”
Stock investors, too, may start looking more to company earnings than macroeconomics, analyst Don Lucek said.
“I think we’ll get to a point here, with the handover of the Fed leadership, where people stop rooting for the changes in macroeconomic policy, in monetary and fiscal policy, and we’ll start to refocus on the fundamentals of companies.”
The Money and Markets Team