In his latest Email article, Steen Jakobsen, Saxo Bank Chief economist and CIO has a bold prediction about interest rates.
With nearly everyone, even Janet Yellen at the Fed, predicting wage-induced inflation, Jakobsen makes a bold call in the opposite direction.
This is a guest post by Steen Jakobsen
Steen’s Chronicle: All Great Things are Simple, Except Right Now
“All the great things are simple, and many can be expressed in a single word: freedom, justice, honour, duty, mercy, hope” — Winston Churchill
Let’s start with what is currently simple, and what has been simple all year.
- The US dollar has peaked and started a multi-year cycle lower as both US and world growth can’t work without a weaker dollar (a stronger dollar kills growth through debt service, emerging markets, and commodities).
- Everything is deflationary: demographics, technology, energy, and the debt mountain.
- The credit impulse peaked in late 2016/early 2017 leaving global growth vulnerable in the fourth quarter of 2016 and into Q1’17.
- US interest rates are headed to 0% in 10-year government yields by the end of 2018, early 2019.
I am enclosing the word “simple” between a generously-sized pair of quotation marks because nothing is truly simple. But the themes outlined above have served us well throughout 2017 with the market having now given up on the Federal Reserve hiking rates beyond December. This is because inflation in the US (and Europe) is more likely to hit 1% than 2%, and because growth – despite certain green shoots – remains considerably below historically normal recovery levels.
Meanwhile, most central banks – most prominently the Fed – continue to believe in the old-school Phillips curve model, and through this mistake, they misguide markets on both inflation and growth – a classically dogmatic, bureaucratic way of thinking whose limits in a world of ever-changing technology are obvious.
…click on the above link to read the rest of the article…