How Inflationary Risk Could Corner the Fed: DB- Jan12, 2021

Real Vision: Finance & Investing

Real Vision

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🗓️ 12 January 2021

⏱️ 36 minutes

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Summary

Peter Boockvar, CIO of Bleakley Advisory Group, joins Real Vision managing editor Ed Harrison to discuss how the full force of inflation that could emerge in 2021 could pose a significant risk to the Fed’s ability to execute. With Treasury yields rising, Boockvar anticipates the scrutiny of stocks with high price-to-earnings ratios to continue expanding, and once the distribution of the COVID-19 vaccine becomes more extensive in the coming months, he explains that the shift in spending toward services-oriented consumption could trigger a rise in nominal rates, but not necessarily in real rates. With the potential risk of inflation accelerating in the coming months and a yield curve that could steepen too quickly, he argues that these circumstances will restrict the Fed’s ability to act in the case of a market event. In the intro, Real Vision’s Haley Draznin examines the continued rise in treasury yields and the macro economic impact of all the debt that has been printed by the U.S. government. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Transcript

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0:00.0	It's Tuesday, January the 12th, 2021.
0:07.0	This is the Real Vision Daily Briefing.
0:12.0	I'm Ed Harrison and I'm talking to Peter Bookbar of Bleakly
0:16.2	Advisors. Before we get to Peter, let's go to Haley Drasden with the news of the day.
0:21.1	Hey Ed, market seesaw between small gains and losses on Tuesday.
0:26.2	There's been a short-term tone shift in the markets with the focus now turning to growth
0:30.3	and inflation.
0:31.7	With Treasury yields rising for a seventh consecutive session
0:35.3	on expectations of increased government spending under the incoming Biden administration,
0:41.0	the 10-year no yield hit pre-pandemic highs up around 4 basis points on Tuesday.
0:47.0	The 2-10's yield curve spread is at its steepest since mid-2017.
0:52.0	Again, investors are betting on additional stimulus
0:55.4	spurring more bond issuance and higher yields on longer maturity treasuries.
1:00.8	The support from rising yields has so far trumped worries that the extra spending in the
1:06.3	U.S. could trigger a faster rise in inflation. A question to think about, could Rising
1:12.2	Rates prompt the Fed to take action to prevent yields
1:15.9	from rising even further.
1:18.2	Yields curve caps have become a discussion point.
1:20.9	Technically, 10-year yields could rise to 1.5% or so and still be trending lower as the
1:27.6	Fed and even global central banks can't afford significantly higher rates given the amount of debt outstanding
1:35.2	and the projected issuance of debt under the incoming Democratic
1:38.8	administration.
	...

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