Eggs go higher
Slavik Kolesnik – Portfolio Manager
February 13, 2025
The latest data clearly challenges the prevailing narrative of Federal Reserve rate cuts and reinforces our view that interest rates will need to remain higher for longer. The recent CPI and PPI prints have significantly undermined expectations of a 100-basis-point rate cut from the Fed, highlighting the persistent inflationary pressures in the economy.
We anticipate the U.S. dollar retracing toward the 100 level, which carries important implications for price inflation. A weaker dollar increases the cost of imported goods and commodities, fueling price pressures across essential consumer basic goods, including food, where we could see egg prices and other grocery costs rise further. Higher inflation will squeeze demand for big-ticket consumer durables, such as housing, vehicles, electronics, and furniture. Elevated borrowing costs will further dampen affordability in the housing market, as mortgage rates remain high, reducing purchasing power and discouraging buyers from entering the market. This could slow home price growth or even lead to price declines in overheated regions.
At the same time, the 10-, 20-, and 30-year Treasury yields are expected to face continued pressure as inflation remains persistent, i.e., foreigners will demand higher returns as the dollar weakens, which is good for equities but unfavorable for duration and long-term US Treasuries. Until there are clear and sustained signs of cooling inflation, extending duration remains an unattractive risk/reward. We continue to maintain our position on the short end of the yield curve.
Leader US Dollar Prediction
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