Fed Week

AmeriVet Rates Commentary

December 13, 2024

 Good morning, everyone. Please find our Fed preview below. 

 Let's Take a Look: 

 There will be a strong debate at next week's meeting. We expect the Fed to finish their work for 2024 with another 25-basis point rate cut. We have called for 100-basis points to begin with the notion that the extreme policy of 2022 was designed for calibration. It is a hard concept for many to grasp with an economy that is seemingly strong but one that we understood from the start. It's landing. 

 We have long felt the less central bank interference is the best policy. After years of intervention and balance sheet manipulation we are once again on the quest for neutral. Interest rate differentials and currency at play too. The Swiss National Bank this week. There is instability on the fiscal side across the globe. Like him or not the incoming President of the United States will lead. China is very weak and obvious by their liquidity policy. 

 The Federal Reserve has an important role to play here. But they don't create jobs. And the need to move interest rates in either direction is questionable once you find a good resting spot. From the global financial crisis, it took a decade to get labor markets back to a good spot. One that Chairman Jerome Powell acknowledged in 2019. But think about that, 10 years. Good fiscal policy drives private sector job growth. Rates clearly have a role. 

 Unless something changes materially interest policy from here will be secondary to policies around energy, supply side thought, regulatory relief/reform, technology, and further productivity gains. And demographics with trillions being passed down in the coming years. Likewise, our deficit levels need and will be addressed too. It's not all good or bad as we look toward 2025. But 2025 will be about "hashing" things out and that requires consideration. 

 Chair Powell is no stranger to Washington. He's a businessman too. We won't break ground next week but look for the Fed to paint a more benign forecast for lower rates over the next few years (Summary of Economic Projections). Certainly, the market is pricing for that. Obviously, subject to change like 2024. But there is still inflation in the system and the best thing the Fed can do is be mindful. We are very confident this meeting will be about that. Mindful. 

 Overall, the search for neutral global interest rates is complicated. And we've written at length over the past few years. There is no equation. We still view interest rate concessions in the United States as constructive for portfolios. The normalization of the global rate structure necessary. The catalyst very unfortunate. But savers should be rewarded. The skew toward slightly lower rate levels feels right. And we're still enjoying some of the best overall yield levels in a long time. Coupons. 

On the Ground

Next week; The Fed, BOE, and Retail Sales. We're priced. It's all about messaging. Chair Powell will give us little from here. And rightly so. They could be on hold from here for a while. 

At the same time the US Treasury market remains fluid. Very well within broader ranges. We began this week discussing yield concession into supply. It's gone further than we expected but that's okay. 

The Fed will embark on their policy review in 2025. We expect changes. Much of which focusing on inflation. Their review and move toward inflation averaging despite the pandemic was an absolute failure in 2020. 

Flexibility. It's required on all levels of life. We expect the Fed to get there in their policy review. This dialogue between Chair Powell and President Trump will be MUCH different than 2018. They may be closer aligned than the market narrative! 

 Have a great weekend!