Simply Put

A primary driver of early-pandemic inflation came from a shortage of semiconductor microchips, a technology essential to everyday items like automobiles and personal electronics that is both expensive and time-intensive to produce. While semiconductor manufacturing has since managed to narrow the gap between supply and demand, US policymakers have taken steps to increase domestic independence in this burgeoning industry. In this episode, we talk with Annie Rothrock, Vice President of the firm ATREG, about how the semiconductor microchip industry changed throughout the pandemic and how recent Federal legislation will shape its future.

The Federal Reserve and many market analysts have been surprised by the inflation trajectory during the pandemic; first by the persistence and intensity of inflation that began in 2021, and more recently by the improvement that has occurred without a meaningful increase in the unemployment rate. Models that rely on inflation expectations and labor market strength have had relatively weak predictive power during the last few years, calling into question how well we understand what drives inflation. In this episode, Peter Hooper, Managing Director and Vice Chair of Research at Deutsche Bank, discusses inflation models at the Fed and in the post-pandemic economy.

The rise in nominal bond yields the last couple of years has reversed a nearly four-decade trend of falling yields prior to the pandemic. With inflation now slowing and the economic effects of the pandemic fading, it’s unclear whether we will return to something resembling the pre-pandemic interest rate environment or if we are in the early stages of a new normal. In this episode, Terry Belton, former Head of Global Portfolio Strategy for the Chief Investment Office at JP Morgan, discusses what drove the 40-year bond bull market, whether he thinks those forces are set to change, and what it means for fixed-income investing moving forward.

Four times per year, the Federal Open Market Committee releases a Summary of Economic Projections that reports FOMC participants’ projections for the federal funds rate and key economic variables. The SEP, featuring the so-called “dot plot,” gives markets a sense of where the Fed feels the economy and monetary policy are heading the next few years, but the implications are not always clear. In this episode, Sophia Kearney-Lederman of FHN Financial talks about what goes into the Fed’s projections, how to interpret them, and how much value they have at this point in the tightening cycle.

Banks use Asset Liability Management modelling, or ALM, to position for different interest rate scenarios and economic shocks. Rapid interest rate hikes starting last year and March bank tensions have put unique stresses on bank balance sheets this year, and the prospect of eventual rate cuts can pose its own challenges in the future. In this episode, Mike DeLisle of FHN Financial discusses how banks have adjusted their balance sheets during this cycle of Fed tightening and how they can best position themselves for the year ahead. 

Commercial Real Estate has come into focus from shifting asset valuations and higher interest rates prompted by the pandemic economy. With bank balance sheets exposed to some of these properties, some worry that any weakness in CRE will add to existing banking industry distress. In this episode, Landon Williams of Cushman & Wakefield discusses the primary drivers of CRE in the current environment, the potential for systemic pressures in the near future, and the most important things to look out for in the year ahead.

The pandemic turbo-charged a shift to remote work that has changed how we live and work. Every city has experienced this a little differently depending on demographics, local job composition, and flexibility of municipal budgets. In this episode, FHN Financial’s Abby Urtz discusses how the new remote work landscape is impacting cities and the municipal debt market.

In addition to lowering its policy rate at the beginning of the pandemic, the Federal Reserve engaged in Quantitative Easing, meant to lower longer-term interest rates and stabilize the mortgage market. Now that the Fed is aiming to remove accommodation from the economy, it is quietly shrinking the amount of Treasury securities and MBS on its balance sheet while markets focus on the path of the fed funds rate. In this episode, FHN Financial’s Walt Schmidt talks about how to understand MBS as the Fed continues its Quantitative Tightening and nears the end of its tightening cycle.

The low unemployment rate and improving inflation picture suggest a so-called “soft landing” could be on the horizon. Rate-sensitive sectors like tech and housing also seem to give a roadmap for how the economy can come into better balance without a significant increase in the unemployment rate. In this episode, FHN Financial’s Chief Economist Chris Low talks about why he’s skeptical the Fed can bring inflation down to its long-run 2% target without tipping the economy into a recession. Also, we discuss the market implications of this week’s FOMC decision and what the Fed will be looking at before the September meeting. 

There’s been relative calm in the banking sector recently after months of worry that a few regional bank failures in March were the first signs of much larger cracks in the financial system. Banks face ongoing liquidity risks, but the bigger issues in the next year could be in bank profitability and funding mix. In this episode, Gray Bowles, Senior Vice President of Portfolio Strategy with FHN Financial, discusses what he sees as the key risks for the banking sector in the next 6-12 months.