Halister News

(Bloomberg) -- Restrictive Fed policy will push short-term rates higher, while lower inflation weighs on long-term Treasury yields, a combination that will flatten the yield curve and may invert it next year, Hoisington Investment Management’s Van R. Hoisington and Lacy Hunt say in quarterly report.

• “Worst economic recovery” of the postwar period is unlikely to improve amid “paltry income growth, a low and falling saving rate and an increasingly restrictive Federal Reserve policy”
  • A December Fed hike, along with “quantitative tightening,” will put upward pressure on short-term rates; Fed balance-sheet reduction, if continued “deep into 2018,” would “probably cause the yield curve to invert”
• High govt debt levels and deteriorating fiscal situation make economy “unlikely to benefit from any debt-financed tax changes,” and recent natural disasters “are an additional constraint” on growth
• PCE inflation, 1.4% y/y, “will continue on a downward path,” aided by “poor demographics and productivity,” specifically slow population and declining household formation growth
• NOTE: Hoisington manages ~$4b, including Wasatch-Hoisington U.S. Treasury Fund (3.6% avg annual return over 3 years)

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Vivien Lou Chen