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Global Equities:

Stocks got more good news from the Friday jobs report, which provided confidence to investors that the Federal Reserve may be reigning in inflation without triggering a recession.

The long-awaited Fed rate cuts finally commenced in September, with the central bank electing to cut rates to a range of 4.75-5% after being widely criticized for not cutting rates in July.

Hopes for a first-half 2024 rate cut quickly faded during the second quarter as the Fed repeatedly stressed its desire to see more sustained progress on inflation.

Financial markets have gotten off to a hot start to 2024, thanks to optimism that the Federal Reserve will begin cutting interest rates sometime in the second half of the year.

The fourth quarter showed encouraging evidence that the Fed may pull off a soft economic landing, with economic data showing persistent improvement in inflation while employment and GDP data continued to surprise to the upside.

Market expectations have shifted to embrace the “soft economic landing” narrative, however the economic strength that has postponed a recession has also given the Federal Reserve (the “Fed”) leeway to keep interest rates elevated for a longer period.

Following the first quarter regional banking sector panic, interest rate expectations shifted towards a Federal Reserve (“the Fed”) pause, due to concerns that further rate hikes would only exacerbate the stress of interest rate mismatches between banks’ long-term investments and shorter-term interest payments on deposits.

Market expectations for Federal Reserve (“the Fed”) interest rate hikes shifted dramatically in the first quarter and not because inflation eased.

The fourth quarter of 2022 continued the year-long theme of stubbornly persistent inflation, with some investors caught off guard by the Federal Reserve’s (“the Fed”) resilience in continuing to hike rates in the face of rising recession risk.

With three quarters of 2022 in the books, inflation continues to present a conundrum for the US Federal Reserve (“the Fed”) as it seeks to cool the economy just enough to bring prices down to a sustainable level without causing a recession and triggering panic in the markets.