Fed Hints at Prolonged Pause
- Economic data released over the last three weeks has further underscored why Fed officials were skeptical of investors’ expectations of an imminent and sustained interval of rate cuts. The Labor Department said the economy added twice as many jobs as forecasters had anticipated in January and inflation also came in above expectations. One month ago, investors thought the Fed was likely to cut rates at its March meeting, but they increasingly see the central bank waiting until June. – WSJ
- Inflation is proving sticky, due to the dearth of economic slack and the self-sustaining interaction between service sector inflation and wages. Credit spreads remain supportive for equities and have edged lower this year despite the rise in government bond yields. Investors weathered the Silicon Valley Bank episode last year, but additional scares are probable before the cycle ends, especially in commercial real estate. – Crossmark
- Thanks to the Federal Reserve’s rate hiking campaign, cash looks more attractive today than in the last two decades. As a result, investors have flocked to cash products, like Certificates of Deposit (CDs), for both safety and income. This has pushed money market fund assets to a record $6 trillion. However, investors should be wary of falling into the “cash trap.” After all, history has clearly shown that one leaves money on the table by not taking some risk in investing. Over the last 30 years, cash has been unable to keep up with the creep of inflation. By contrast, other investments have been much better places to park capital. Moreover, for investors willing to take more risk, the reward has generally been worth it.– JPM
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