Citi Private Bank Pivots From US Stocks, Warns Over Fed

Editorial Staff

2 May 2022

shares and US Mortgage REITS. Further, Citi Private Bank has added to its 10 per cent-plus allocation of the most well capitalised, global dividend growth shares, which it said was its largest off-index position.

The bank believes that the global economic recovery will continue, but it warns that the US Fed appears to be taking risks with such expansion.

The Citi Private Bank report came out a few days before the UK’s Bank of England raised rates and when the European Central Bank’s president, Christine Lagarde, said inflation risks in the eurozone were on the upside.

“The stance of monetary policy is indeed unsustainably easy. Supply and demand will have to grow at similar rates in the future for the economic expansion to be sustained. However, COVID has left massive (and we believe temporary) distortions to product demand and labour markets. In fighting inflation, policymakers should see that inducing a collapse in demand would do nothing to solve present challenges,” Citi Private Bank said.

The private bank said that government and central bank policy is already contributing less to inflationary pressures in the US. “This is well evident in slowing US retail sales data. `Excess demand’ for certain goods at the expense of services is not addressable with monetary policy. Even more clearly, Omicron’s impact on global and local supply chains can’t be fixed with tightening macroeconomic policies. Contrary to Fed Chairman Powell’s comments, much evidence is accumulating that a supply recovery is unfolding. US imports surged 20 per cent over the past year. Inventories spiked in late 2021,” it said.

The bank said it was reassured by the valuation of 13 times 2022 estimates for most non-US equities’ price-earnings ratios, and it has increased exposure to several non-US equities.