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An Emerging Trend: Betting on No Rate Cuts in 2024

Financial Commentary
April 29, 2024
By Jonathan Smith
Securities Analyst

In the dynamic world of finance, every word uttered by the Federal Reserve can send ripples throughout the financial markets. As we settle into 2024, the U.S. economy continued to build off last year’s strength with a robust labor market fueling economic growth. From recent speaking engagements, Fed officials relayed that there is no urgent need to cut rates, amid resiliency in the U.S. economy. With the recent sentiment from the Fed, an emerging trend towards betting on no rate cuts this year is gaining traction.

Resilient U.S. Economy

Despite lingering challenges from the COVID-19 pandemic, the U.S. economy continues to display remarkable growth. Last week, U.S. gross domestic product (GDP), which is a comprehensive measure of economic growth, increased for the first quarter at a 1.6% annualized rate. This is a slowdown in momentum from a surprisingly strong previous year, but still above trend pace levels. The report also shows a continuation of solid demand from consumers. The Fed is concerned that economic growth and a robust labor continue to add to inflationary risks.

In recent months, inflation trended higher. Their preferred metric to measure inflation is the personal consumption expenditures (PCE) index, which was reported at annualized 3.7% for the first quarter. The increase primarily came from the service sector of the economy in insurance premiums, health care, and financial services. While some argue that elevated inflation warrants rate cuts to cool down the economy, others caution the Fed against a knee-jerk response that could risk undermining their long-term price stability objective.

As investors wager on the trajectory of interest rates in 2024, the sentiment is leaning towards a possibility of no rate cuts by the Fed this year. Economic resilience, a robust labor market, and sticky inflation continue to fuel the Fed’s case for leaving borrowing costs unchanged. In this landscape, great opportunities continue to be present among fixed income by achieving higher yields without assuming considerable risks. Contact your wealth management advisor today to review opportunities present in your portfolio. Your success matters to us!

 

About the Author

Jonathan Smith

Jonathan Smith is a Securities Analyst for the Security National Wealth Management team. He has more than 10 years of experience in the investment and financial field. He is a graduate of Briar Cliff University in Sioux City where he lives with his wife and growing family. In the community, Jonathan serves on multiple boards, including the Fiscal and Public Policy Commission for the City of Sioux City, Girls, Inc., the Siouxland Community Foundation and the Ronald McDonald House of Siouxland.

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