Forward Guidance Alfonso Peccatiello: The Fed Put Is Back, Bull Steepener Base Case
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May 9, 2024 Financial analyst Alfonso Peccatiello discusses the Fed Put and Bull Steepener Base Case. Topics include impact of higher interest rates, private debt, government deficits, interest rate sensitivity, US recession risk, macro carry strategies, and trading frameworks in macro investing.
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Debt Service Ratio as an Indicator
- The debt service ratio is key to understanding the impact of interest rate hikes on the private sector.
- It calculates the portion of disposable income used to service debt, revealing the real-time effects of monetary policy.
Stimulative Effect of High Interest Rates: A Flawed Argument
- The "higher interest rates are stimulative" argument is flawed and temporary.
- While some entities benefit from higher returns on assets, the eventual refinancing cycle and increased debt servicing costs will negatively impact the private sector.
Variable Rate Mortgages and Interest Rate Sensitivity
- Unlike in the US, variable rate mortgages are common in Europe.
- This makes European economies more sensitive to interest rate hikes by the ECB, as the impact is felt much sooner.