Capital Markets: Observations & Insights

Leading Cycle Indicators Are Benign Fundamentals

• Every major recession in the past 75 years has been preceded by substantial Fed Funds rate tightening or inflation acceleration, or both • We believe the Fed can be patient given forces weighing on inflation including innovation (price transparency), labor dynamics (retirees), and globalization

Recession

Fed Funds Effective Rate

Inflation

10 12 14 16 18 20

Today, short-term interest rates and inflation are both less than 2%

-2 0 2 4 6 8

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

2017

Source: FactSet as of September 2017. Inflation represented by PCE Price Index ex-food and energy (year over year).

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