How Many Cuts?
- The economy has cooled gradually, a trend that Wall Street expects to continue. A belief that the Fed would cut interest rates aggressively this year sparked a rally across all asset classes to end last year. But investors have lately dialed back expectations for interest-rate cuts, which has led some portfolio managers to turn back to tech. “It’s a flight to quality where people have confidence in the fundamentals,” said Jim Golan, co-manager of the large-cap growth fund at William Blair. – WSJ
- US corporate bond marks are “on fire” as companies have sold a record $150bn of debt since the start of this month, the busiest opening to the year for more than three decades. Investment-grade groups have issued $153bn worth of bonds this month, according to data from London Stock Exchange Group, the highest year-to-date figure for dollar-denominated debt in records going back to 1990 as of 01/22/24. Borrowers are rushing to lock in lower interest costs awhile investors are keen to buy new bonds before policymakers start cutting US interest rates this year. – Crossmark
- The main argument for the Fed cutting rates in March is that the Fed’s workhorse model says that because of the sharp decline in inflation over the past six months, the Fed funds rate today should not be 5.5% but 4.5%. Specifically, the Fed has used the Taylor rule framework for decades to understand what the Fed funds rate should be, and inserting the current level of inflation and unemployment into the Taylor rule shows that the Fed funds rate today should be 4.5%. – Apollo
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