Recession worries receding – Insync

Insync Funds Management has developed a white paper in which it argues that interest rate policy expectations are moderating and with them the likely of a deep, protracted recession.

The white paper, authored by Insync Portfolio Manager, John Lobb, actually suggests the outlook should be for modest growth.

“Anecdotal evidence suggests that as we foretold, supply chain log jams are alleviating, the oil price has dropped well below $100/barrel and agricultural goods price inflation is decelerating; particularly wheat which has returned to December 2021 levels,” Lobb said.

He suggested that there was also hard evidence that although Insync expects at least another 50bps in tightening by the US Federal Reserve, the risks of the target rate exceeding 3.5% remain low.

“The United States Michigan 5-Year Inflation Expectations, which is considered the pre-eminent gauge in setting the Federal Fund Rate, reveals consumers have tempered their expectations regarding annual price momentum,” Lobb said. “As a result, equity markets have begun the second half of 2022 with a respectable 10% rally.”

The White Paper suggests that while there is a sound basis for arguing that the Federal Rate is currently too low, it is unlikely to be lifted more than 3.5% due to the combined effect of slowing GDP growth and peaking shorter term inflationary expectations.

“Long term inflation averages a little over 3%, yet in the last 10 or so years we got used to a once in a lifetime decade of ultra-low rates. Normalisation is not anti-growth,” the White Paper said.