Jamie Murray's Top Picks: February 18, 2022
BNN Bloomberg
Top picks from Jamie Murray, portfolio manager and head of research, Murray Wealth Group
MARKET OUTLOOK:
The current economic situation presents a dilemma to western world central banks, treasury and financial ministries. Quantitative easing, along with employment benefits, have been amazing at mitigating the economic effects of the COVID shutdowns. This, though, has kept consumer spending at high levels, which has led to significant shortages of many goods from COVID-prevention measures.
The move to a virtual world has unleashed a massive bout of productivity that has lifted GDP to new highs, but this has been accompanied by an outbreak of inflation which was initially dismissed as transitory, but with the continuing pandemic and further shutdowns, has continued to rise to the point where it is now moving to the top of economic discussions.
The normal policy measures for inflation are monetary tightening and higher administered interest rates, but this is the exact opposite of quantitative easing and presents a quandary for the central bankers.
The U.S. Fed has been committed to slowing quantitative easing, which entails the central bank buying massive amounts of bonds on the open markets. The problem is they are still buying bonds but not as many as before, and they also want to “normalize” interest rates, which means getting the central bank rate back to above 2 per cent.
This is a massive reversal for institutions that generally need to move policy changes slowly and only move quickly when a genuine crisis is at hand. We believe increased investment in automation and a massive supply-side response will help turn the inflation narrative in the medium term but expect volatility in the interim.
