Closing Thoughts for the Week

There’s a lot of data still suggesting that re-inflation is happening and the Fed is likely going to be unable to provide much, if any, monetary support in 2025. The Bank of Japan meets again on Friday of this coming week to set policy. If the latest chatter is to be believed, it sounds like that as of right now it’s more likely than not that they’ll hike to 0.5%. If/when that happens, look out.

The much better than expected 256K jobs added was good for the U.S. macroeconomic picture because it helps ensure that recession isn’t on the radar, but negative for the financial markets because it probably means the Fed will be able to cut rates very little this year. The larger implication is for inflation. It’s clearly possible that we may be in the early stages of a broader pullback for both equities and fixed income.

It was another quiet holiday-shortened week for the markets, but a new year brings a fresh outlook. Don’t be surprised if inflation quickly becomes a larger theme in the new year. We may be seeing risks starting to get priced into the bond market as well. High yield credit spreads have been expanding for three weeks. There are a lot of variables that could throw a wrench in the engine.