The Macro Report | May 2018
The inflation conundrum
Our outlook contains some small but noteworthy shifts. Rising oil prices are expected to lift slightly the trajectory of inflation in the United States because of the pass-through to consumer prices. A stable economy and a tight labor market have also pushed prices toward the Federal Reserve’s 2% target. Fed officials called attention to the “symmetric” nature of their target in a May statement, signaling they expect inflation to run at least a little above target this year. The growth outlook for the United States is also shifting. While we expect a late-cycle boost in growth driven by the fiscal stimulus, it will be a little less pronounced due to higher oil prices, lackluster corporate investment, and trade policies. Abroad, central banks are reacting to different dynamics. As the Fed gradually tightens monetary policy, the European Central Bank remains cautious in providing a clear timeline to remove stimulus. In the eurozone, inflation continues to remain below the ECB’s target. In Asia, China’s central bank unexpectedly reduced the cash that banks hold as reserves, a move that frees up lending for small firms and reduces funding costs. Meanwhile, higher U.S. rates, a stronger dollar, and political uncertainties have weighed on emerging markets.
Shifting U.S. inflation outlook
The surge in oil prices will alter the trajectory of inflation this year; while lackluster investment and trade policies may weigh on the growth outlook
The ECB’s policy dilemma
The European Central Bank continues to defy expectations for a clear timeline to exit its stimulus plan as inflation remains below target.
Cross currents in emerging markets
China appears vulnerable to private capital outflows, while other emerging markets have to contend with political upheaval, rising interest rates, and a strong dollar.
About the macro report
The Macro Report is written by members of Putnam’s Fixed Income team. With backgrounds in applied economics, currency and interest-rate analysis, and sovereign and local bond market dynamics, this group conducts macroeconomic research in support of Putnam’s global fixed-income strategies.
Michael Atkin, Portfolio Manager
Investing since 1988
Sovereign debt, global growth analysis
Albert Chan, CFA, Portfolio Manager
Interest-rate derivatives, government debt, risk analysis
Onsel Emre, PhD, Analyst
Inflation, risk analysis, global growth dynamics
Sterling Horne, Analyst
Politics and economics
Irina Solyanik, CFA, Analyst
Quantitive analysis, growth forecasting
Izzet Yildiz, PhD, Analyst
Labor market analysis, global growth dynamics