The recent surge in Treasury yields has dealt a heavy blow to producers of metals and other raw materials. Analysts and investors are interpreting these yield increases as a sign of impending inflation and anticipate stricter monetary policy from the Federal Reserve.
Brent Schutte, the Chief Investment Officer at Northwestern Mutual Wealth Management, points out that the Federal Reserve is constantly on guard against a phenomenon known as the “wage-price spiral” that occurred between 1966 and 1982. Though wage inflation has seen a slight dip in recent months, Schutte argues that wages are still dangerously high, the labor market remains robust, and the Fed is concerned this could reignite inflationary pressures.
To prompt a change in the Fed’s monetary policy, Schutte believes that the labor market would have to weaken significantly, even to the point of a recession.
In contrast, China’s economy has shown signs of resilience in the third quarter, defying previous weaknesses. With reports of a 4.9% growth rate, retail sales have experienced a boost from government stimulus, while factory activity has stabilized after a prolonged period of sluggishness.
Written by Rob Curran