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We now turn to the first of our five themes for the year ahead: “Still higher for longer: What slower rate cuts mean for private capital investors.”
Let’s stipulate the Fed has pulled off the trickiest of landings: cooling down inflation while keeping the economy chugging along. With reference rates sliced by 100 bps from last year, borrowers have some relief in the cost of capital and interest burden. Yet with the dawn of a new administration, the market is pricing in sustained inflation with higher Treasury yields and much slower rate cuts through 2025.
The hope is for enough positive GDP momentum to keep adding new jobs and improving productivity. December’s labor report showed 256,000 job adds, and core CPI decelerating modestly to 3.2%. And while other inflation data remained stubbornly above the Fed’s target, investors should draw confidence from a resilient backdrop. At a portfolio level, we have also seen companies adapt to higher-for-longer, keep cash levels robust...
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