January 31, 2025 | Hunt: Global Capacity Under-Utilization Leading Unemployment Higher

Hoisington Management’s Fourth Quarter 2024 Review and Outlook is now available at this link. Always worth a mull. Here’s the main takeaway:

“…fundamental determinants of inflation indicate the prospects for slower price increases are even more significant than in any year since the late 1990s. In addition to the growing factory capacity glut and rising UR [unemployment rate], the percent decline in modernized world dollar liquidity (WDL) reached another record low in the fourth quarter. The accelerating decline in WDL will intensify the liquidity/money squeeze domestically and globally. We estimate the trend-adjusted real M2 declined further in the fourth quarter. Since the Fed’s first reduction in the policy rate in September, critical consumer and small business borrowing rates have remained unchanged or increased. Such considerations argue that lower inflation will lead to a surprising drop in thirty-year Treasury bond yields in 2025.”

Lacy Hunt discussed his analysis in detail with Adam Taggart this week.

Recession fears seem to have faded from the headlines, as the “no landing” scenario seems to have won out — on Wall Street at least. Attention is much more focused on a possible boost to economic growth from the policies of the new Trump administration, as well as concern that inflation could prove stickier and more stubborn to tame than the Fed hopes, resulting in higher for longer bond yields. So, were the deflationists wrong? For a true expert’s view, we have the great fortune to sit down today with one of the greatest living economists, Dr. Lacy Hunt, former Senior Economist to the Federal Reserve Bank of Dallas, as well as several of the world’s largest global banks. Here is a direct video link. 

Danielle Park January 31st, 2025

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