Brace yourselves. MUFG's John Herrmann just revised down his already low (U3) unemployment rate forecast to plunge to 6.25% by year-end 2020 (currently, 7.9%) and to 4.0% by year-end 2021 (our previous forecast, 4.6%). That only increases the gap between MUFG, the consensus, and "official" estimates like the FOMC and the IMF. Our updated forecasts are at least 150 bps lower than either the consensus estimate or the FOMC’s projections – not to mention that our forecasts are lower (by at least 40 bps) than every other estimate in the entire Bloomberg survey! As we are well aware, now, John Herrmann's growth expectations are similarly more optimistic. How will the FOMC and the yield curve react if MUFG's forecasts play out? Over the coming six to twelve months, as market and FOMC participants recalibrate their own expectations for the U.S. economy, might Treasury markets undergo a “mini” taper tantrum by late spring or early summer 2021?
In this episode, MUFG U.S. Rates Strategist, John Herrmann, reviews his revised unemployment rate forecast as well as discusses GDP and inflation forecasts. He also explores the implications of those forecasts on his investment thesis, the 2s-30s yield curve steepener.