Leading Economic Index
We think the recent drop below zero of the Leading Economic Index (LEI) supports our view of lower interest rates on the near horizon. The thirteen times since the Korean War that the LEI has dropped below zero has a perfect record of declines in long and short term rates. In addition, recessions occurred in 9 of the cases and significant economic slowdowns in the other 4 periods.
If the Fed raises rates at the August Meeting it likely marks the last time this cycle they raise rates. On average, the Fed has started easing five months after the end of the prior tightening cycles. This ranges from one month in mid-1984 to eight months after the end of tightening in mid-2000. This suggests easing by late 2006 or the first few months of 2007.
Strategy Update: Our projection of lower interest rates over the balance of the year has us long maturity in most fixed income Strategies.
If the Fed raises rates at the August Meeting it likely marks the last time this cycle they raise rates. On average, the Fed has started easing five months after the end of the prior tightening cycles. This ranges from one month in mid-1984 to eight months after the end of tightening in mid-2000. This suggests easing by late 2006 or the first few months of 2007.
Strategy Update: Our projection of lower interest rates over the balance of the year has us long maturity in most fixed income Strategies.
posted by WRA Strategy Group at 11:57 AM
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