In an interview with CNBC’s Market Alert, David Herro of Harris Associates reminded viewers that there’s always a lag effect to monetary policy. Though the Fed was “behind the ball, they seem to be catching up,” he said, noting that housing prices as well as the growth rate are beginning to soften. There seems to be more optimism in the market, giving hope to the possibility of the Fed engineering their soft landing after all.
To get rampant inflation under control, fiscal policy is needed as well as monetary policy, Herro told CNBC, but no one wants a total destruction of demand in order to accomplish that. Meanwhile, while many are focused on the data points that shift the market in the short-term, there are actually many opportunities for long-term investors who look at the price of business and the value of what they’re getting at the price they’re paying.
One of the biggest opportunities Herro highlights is overseas: while U.S. companies are bemoaning the strength of the dollar and the damage it’s causing, European and Japanese companies that have exposure to the dollar are getting a large currency boost in their performances thanks to their weakened home currency. Investors who hold foreign assets will feel immediate pain as the dollar strengthens, but foreign companies who have a lot of dollar revenue and compete against U.S. companies will see the benefits eventually trickle down. And because we haven’t yet seen the positive impact on local markets that typically happens after a currency devaluation, that’s providing a chance for investors to buy into overseas shares at very undervalued currencies, Herro said.