Outlook - October 2021
SUMMARY OF THE MONTH
Economic growth is slowing, following the spectacular rebound in global gross domestic product (GDP).
Financial markets rebounded from September's downturn to close October at new all-time highs, with a four-week streak of positive performance driven by corporate earnings.
At the Fed's early November meeting, Powell announced the start of tapering, but maintained that rates would not rise in the near term. He later mentioned that the risks of inflation remaining persistently high are especially present given the supply chain disruptions.
Inflation expectations have risen, the 10-year Treasury note has risen to above 1.6% and has remained consistently above 1.5%.
MACRO CORNER
The Fed remains between a rock and a hard place. It is unable to raise rates, but at the same time inflation remains stubbornly high. Substantial levels of disruption in supply chains have not helped, stoking fears that the holiday season will be the worst yet for many companies.
However, in statements made in early November, the Fed announced that it would reduce bond purchases by $15 billion per month, but would not raise rates. While inflation remains "transitory," elevated levels could be persistent as supply chain disruptions continue. A great example of the logistical challenges facing many globalized companies, is the situation in the port of Los AngelesCurrently, there are approximately 200,000 containers on the ships waiting to be unloaded, which represents two weeks of work.
To try to alleviate the problems, President Biden announced that the Port of Los Angeles would operate 24/7. However, the problems do not stop there because there is not enough supply of trucks and space to store empty containers.
