Two Big Tests in 2018: Fed's Dovish Policy Outlook & Corporate Capital Allocation
The Fed’s economic and federal funds rate forecasts for 2018 seem both dovish and incompatible, since stronger growth is not being met with a change in forward guidance.
Chair Yellen remains unsure of tax reform’s impact on economic growth, but incoming Chairman Powell has the difficult task of having to alter forward guidance in a hawkish manner if required.
The prospective path of private sector demand in the aftermath of tax reform will have an important bearing on the direction of US Treasury bond yields.
Higher capital spending could result in greater external borrowing by companies, but this need not be disastrous for financial markets as long as higher inflation is avoided, as was the case in the late-1990s.
Financial markets believe companies will engage in higher capital spending after the passage of tax reform, as evidenced by the underperformance of companies involved in high buyback activity versus those with high reinvestment rates.
Corporate officers need to avoid the pitfalls of the late-1990s by shunning the temptation to engage in excessive investment that will be ultimately detrimental to both corporations and the economy.
DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the intention of delivering independent global macro investment insights and new thematic long-term ideas to investors, along with an agnostic opinion of the markets.
Said DeSaque has over 29 years of experience working as a professional economist in financial services, primarily based in London. His working role has involved extensive travel around the world, bringing him into contact with investors of different cultural backgrounds and investment requirements. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist and Investment Strategist at US banks Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he became Head of the London Economics Department in 1996. This role allowed him to engage with senior investment professionals, alongside regulators and provided a unique perspective of market intelligence at work.
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