Leading Indicators Signal Stability
Currently a number of forces are weighing on inflation, allowing the Fed to be patient in its tightening path. Given that every major recession of the past 75 years has followed significant Fed Funds rate tightening or inflation acceleration, or both, we believe a recession is not imminent.
  • Short-term interest rates and inflation remain subdued, which does not signify a near-term recession, according to historical patterns.

  • Interest rate increases have come slowly—less than one third the typical pace. Additionally, the market usually does not peak until the Fed is done raising rates and the Fed believes it still has a substantial amount of tightening to do in order to normalize rates.

  • Innovation is a primary mitigant of inflation. Because we live at a time when consumers can easily compare prices across purveyors of goods, businesses tend to keep their prices down in an effort to remain competitive.

  • Contemporary labor dynamics also favor a low inflation environment. As older and generally costlier employees retire, businesses replace them with younger and cheaper workers, which keeps wage pressures down.

  • Lastly, globalization also depresses wage pressures by making scores of workers from around the world accessible to U.S. employers. An ever abundant labor pool prevents demand for labor from oustripping supply and keeps inflation from heating up.​

The views expressed are the views of Fred Alger Management, Inc. as of January 2018. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security or any funds managed by Fred Alger Management, Inc. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

Risk Disclosures: Investing in the stock market involves gains and losses and may not be suitable for all investors. Growth stocks tend to be more volatile than other stocks, as the prices of growth stocks tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political and economic development.

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