Wellington Management on inflation, Fed politicization, and Europe's outlook (with Anna Edwards, Guy Johnson)

9/17/2025 12:40:48 AM	short term cautious down	5 days later	+0.39%	-0.19%

Paul Skinner

Goldilocks scenario is least likely for 2026. Expects economic uplift accompanied by inflationary pulse, forcing central banks to stop cutting rates.

Cites PMI input prices at 63, output at 53, implying CPI of 3.5% going into next year. Low labor turnover means unemployment may not expand, making inflation sticky.

Paul Skinner

Expects a very divided Fed this week, beginning of more politicization next year. However, Trump admin cannot let markets run away; a political Fed will still 'do the right thing' to keep markets onside.

Draws parallel to Japan's Abe firing BOJ bankers and cutting rates, causing yen to fall 28% in two years. Trump won't want a dollar or funding problem for his deficit.

Paul Skinner

Bullish on Europe due to fiscal spend, hopes private sector and German consumer join in. ECB hikes next year are pretty unlikely; inflation more contained than in US/UK.

Only 3 bps priced for hikes until year-end, 'nothing serious'.

Paul Skinner

Expects weaker dollar. BOJ will raise rates more than discounted (closer to 2% vs. 1% priced), causing money flows and a snap-back in FX spreads.

Japan has strong corporate profits (up 19%), inflation at 2.8%, massive fiscal stimulus (1.5% of GDP), and negative monetary policy.

Paul Skinner

Worried about insurers and pension funds exposed to private credit, which could cause big dispersion in credit markets.

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