10 - Laserfiche WebLink

DISCUSSION HIGHLIGHTS U.S. Economic and Market Overview As a new year begins, we see three key investment themes to watch going forward: the Federal Reserve's pivot to reverse 2020's unprecedented monetary stimulus measures; inflation soaring to a 40-year high; and the challenge of maintaining the recovery even as the economy faces various headwinds, such as an overstimulated economy. The Fed's intention to end its bond-buying program late in the first quarter of 2022 marked the beginning of a tightening cycle. We expect that the Fed will raise short-term rates by 50 to 75 basis points over the course of two or three hikes in 2022 to tame inflationary pressures. Quantitative tightening - shrinking the Fed's balance sheet through slowing the reinvestment of maturing securities - should also commence in 2022. Central banks around the world may also cut back on aggressive monetary stimulus programs and consider rate hikes of their own. The removal of monetary accommodation, especially during a lingering pandemic, could dampen economic recovery prospects if done too aggressively. A 40-year peak in inflation rattled investors during 2021. Looking beneath the headlines, however, the primary sources of inflation - pandemic-related supply chain and production constraints as well as the demand for goods and demand for services - followed different paths. Flush with stimulus cash and built-up savings during the pandemic, shoppers went on a buying spree while demand for services actually declined versus prior periods. But the worst of goods-driven inflation may be behind us as supply chains and production constraints normalize and consumer savings levels decline, while cheap credit due to low interest rates slowly wanes. The Fed faces a daunting challenge and inflection point as it attempts to begin a tightening regime while simultaneously seeking to deliver on its two mandates of maximum employment and price stability. Too much tightening too soon could choke economic growth and potentially lead to a recession. But tepid rate hikes could do too little to reduce inflation while leaving the Fed with too small of a supply of"dry powder" to fight future downturns. A "Goldilocks" monetary approach will be a challenge given the Fed's narrow range of policy options. Complicating matters further, data the Fed relies on to make decisions have been whipsawed by the pandemic. AHIGHIVIARK® PARS: City of Pleasanton 2 CAPITAL MANAGEMENT