Three Reasons for Pragmatic Optimism in the Economy

LPL Research’s Chief Economist, Dr. Jeffrey Roach, explains why demand for U.S. Treasuries is stable, inflation may ease later this year, and why the Fed could cut rates in the summertime.

Last Edited by: LPL Research

Last Updated: February 14, 2025

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Jeffrey Roach (00:04):

Hi, I am Jeffrey Roach, Chief Economist for LPL Financial, with three key takeaways about the current macro landscape. First, income growth is still faster than inflation. Investors just got the latest read on inflation, and despite the surprise rise in consumer prices for January, disposable income per capita rose more than prices since the beginning of 2020. I call this my chart of the year since this explains why businesses were able to post such strong growth numbers in the face of deep inflation pressures. Second, demand for U.S. Treasuries is strong. Stable U.S. growth, a strong dollar and higher domestic interest rates support appetite for U.S. Treasuries. Foreign purchases reached over $2.6 trillion in November, which is the latest data we have from Treasury. Strong foreign demand for Treasuries is important as the U.S. will be issuing trillions of Treasury securities as well as rolling over several more trillion set to mature in 2025.

Jeffrey Roach (01:06):

Third, Fed's next move is still a cut. Powell has emphasized the need for a cautious approach, indicating the Fed may need to keep interest rates higher for longer to combat inflation. Given the latest inflation release, the Fed will likely not cut rates until the summertime. In most recent news, a bird flu outbreak significantly impacted egg prices due to its devastating effect on poultry flocks. Millions of egg laying hens were culled to prevent the spread of the virus, drastically reducing the supply of eggs in recent months. This reduction in supply, coupled with ongoing supply chain disruptions and increased production costs, has led to historic increase in egg prices. Now, the impact on the country's inflation metrics could be a one-off event, as farmers deal with the shock. We think investors need to wait a few months before inflation will look more subdued. Well, that's all for now. If you want more insights on global market trends, follow us on social media and take care.

 

Dr. Jeffrey Roach, LPL Research’s Chief Economist, explains why demand for U.S. Treasuries is stable, inflation may ease later this year, and why the Federal Reserve could cut rates in the summertime.

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