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Macro views

Whiplash, worries and white noise

September 18, 2024 - 3 min read

Portfolio Manager Jack Janasiewicz, CFA®; Portfolio Strategist Garrett Melson, CFA®; and Investment Strategist Brian Hess discuss how the combination of slowing inflation and a cooling US labor market could impact the amount and size of Fed rate cuts in the weeks and months ahead. They believe:

  • Inflation should be less of a concern going forward, with just a handful of items still contributing, including housing and motor vehicle insurance.
  • Shelter disinflation is continuing to work its way through the system, and Core PCE (Ex-Shelter) is now basically in line with the Fed’s 2% target. 
  • The labor market is cooling, a byproduct of full employment, but is not leading to a recessionary environment. 
  • The recent uptick in unemployment is more of a normalization, and the Fed will now be shifting away from the inflation side of the dual mandate to focus on the labor side. 
  • The Fed is likely to begin cutting rates shortly and should veer away from restrictive policy to something more neutral. We should see a number of 25 basis point (bp) cuts in here over the next few meetings, but could certainly see a 50bp cut because there's plenty of cover on the inflation-risk front for the Fed to move more aggressively. 
  • The US consumer remains in good health with solid household balance sheets and aggregate incomes still growing at a 5% clip, which is above average. 
  • The Mag 7 is down almost 10% since July 16 vs. the rest of the 493, which is telling as to what the broader market has been able to do. We believe broader participation will be a theme that continues as Mag 7 earnings growth comes back down to Earth and the 493 start to catch up.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Natixis Investment Managers or any of its affiliates. The views and opinions are as of September 12, 2024, and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.

 

All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided. Investors should fully understand the risks associated with any investment prior to investing.

CFA® and Chartered Financial Analyst® are registered trademarks owned by the CFA Institute.
 

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