The VP Blog

A blog about financial markets and our investing framework

A closer look at the decline in the US labour force participation rate

A recent piece by Ellyn Terry, an economist at the Atlanta Fed, provides important evidence and information on the drivers of the decline in the US labour force participation rate. The interesting aspect of this small study is that it breaks down the drivers on age groups which allows us to get a much closer look at the recent trends in the US labour force participation rate

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Old habits die hard in China as FX reserve growth surges

Investors welcomed the vow made last year by the new Chinese government to reform the economy through a clamp-down on shadow banking and excess liquidity as well as to commit to a strategy of re-balancing the economy. Still, it seems difficult for China to break out of its old ways. Data released this week consequently shows FX reserve growth in China surging towards the end of last year.

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High bar for further improvement in US manufacturing

The last seven months have seen an impressive improvement in US manufacturing. Almost all components of US manufacturing have been growing strongly and the US ISM has staged an impressive comeback from sub-50 in May last year to 57 in December. However, our growth diffusion index now implies the potential for short-term disappointment.

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The Fed and QE – An almost impossible balancing act

A nice series of articles from Bloomberg news alerts us to the fact that the Fed is anything but united when it comes to QE. There is consequently ongoing confusion, disagreement and general apprehension surrounding whether and how the Fed is supposed to end QE . Quite simply; the powers that be do not see eye to eye on this one and this is slightly worrying (if completely understandable).

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Forward Guidance: “Stronger and Longer”

Yesterday’s FOMC saw the first tapering of bond purchases by the Fed, by $10 billion per month. To soothe markets, the Fed also reinforced its forward guidance, making it “stronger and longer”, by a promise to leave the Federal Funds rate close to the zero bound “well past the time that the unemployment rate declines below 6.5%”.

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