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

20

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

18

16

14

12

10

8 Percentage

6

4

2

0

-2

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

2017

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

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