Already a subscriber?About four years ago, I fell out of love with bonds as an asset class, doubting their efficacy in a defensive portfolio.
Much has happened between now and then in both fiscal and monetary policy. Central banks have returned global interest rates to levels not seen since before the global financial crisis, and rate cuts can now be used again as a stimulus tool. As we approach the US elections in November the Fed is on high alert to cut interest rates and is waiting for the opportunity to do so. I think deteriorating employment will give them the backdrop they need to ease rates, and there is a chance this comes as early as July.
Currently, we are right at that level with US unemployment at 3.9 per cent up from its low of 3.4 per cent in January 2023. Our forward-looking indicators highlight that the US is likely to climb to 4.4 per cent by year-end.The balancing act continues, but I expect the weakness in the US labour market to tip the balance and allow the Fed to cut rates.
Towards the end of 2023, the Fed expressed satisfaction as core CPI fell below 2 per cent, with the exception of the rent component, which typically just lags actual rents. Both core goods and core services inflation experienced significant declines. However, this apparent success was short-lived,
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