“The Causes and Consequences of the Fed’s Misjudgement”, John Ryding, RDQ Economics

 JP Smith of the IRF is joined by John Ryding of RDQ Economics, a US based macro-economics consultancy which he founded along with former Bear Stearns colleague Conrad Dequadros in 2008, to discuss the outlook for the US economy over the coming months. 

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John describes the process and approach of RDQ fusing economic history and John and Conrad’s own extensive experience of the relationship between macro-economics and financial markets, with the more classical economic modelling and data-based techniques. This eclectic methodology enabled RDQ to be well ahead of the consensus in forecasting much higher inflation over the past fifteen months and John outlines the reasons behind the Fed’s mistaken belief that inflation would prove transitory and what this implies for the future trajectory of inflation and direction of monetary policy. RDQ remain pessimistic about the Fed’s ability to curb excess demand due to previous policy errors, the overheating labour market and secular trends such as demographics and the reshoring of manufacturing. 

 

RDQ believe that US dollar strength is likely to persist given further tightening of US monetary policy relative to current expectations and the increasingly dire outlook in Europe and China; ’the currency markets can run an awful lot further than one would think’. John is sceptical that tighter monetary policy is fully priced into financial markets, but that commodities and real assets have even greater downside as Fed action slows the global economy. John and JP concur that lower earnings are not yet fully discounted in equities which are likely to remain volatile without any clear direction over the coming months.