The writer is chief investment officer for Guggenheim Partners Investment Management2022 was such a white-knuckle year for interest rates and market valuations. Investors should be forgiven for hoping that 2023 will be different. It will be different, but they should not expect much relief from volatility.
The strong US jobs figures for January demonstrate that real-time economic releases still have the power to surprise. But the more meaningful long-term matter for investors to keep in mind is that we have transitioned from a world of quantitative easing to one of tightening.
We believe that no one should be betting on the Federal Reserve pivoting from that in a quarter or two just because the US is close to a recession. The days of making easy money during QE are over. The year-over-year growth rate of the M2 measure of money supply in the US neared 30 per cent post-Covid because of the massive monetary and fiscal policy response to the pandemic. But it did not drive goods and services inflation or real economic activity to the degree that Milton Friedman would have predicted.