Wealth Outlook 2024 - Slow then grow

Peak rates equals peak income: extend duration 49 Wealth Outlook 2024 | Portfolio views FIGURE 1 Fed Funds rate implied by Fed Funds futures Yield (%) Recession Effective Fed Funds rate Fed Futures (Current) 8 0 2 4 6 1992 1996 2000 2004 2008 2012 2016 2020 2024 Source: Bloomberg, as of November 22, 2023. All forecasts are expressions of opinion, are subject to change without notice, and are not intended to be a guarantee of future events. Past performance is no guarantee of future results. Real results may vary. The impact of higher rates is not over. Ultimately, chances are that the Fed’s actions will gradually slow global economic growth, while also raising US unemployment. As unemployment rises, we believe the Fed will move pre-emptively to begin lowering its policy rate, in turn perhaps resulting in sharply lower yields across the curve ( FIGURE 1 ) . As such, 2024 may be a beneficial year for bondholders who add intermediate-maturity bonds to portfolios to lock in potentially peak interest rates. If rates drop, there is capital appreciation to be captured, while the current income protects investors to the extent that rates stay higher for longer. “Intermediate-term” in this case means any issues with five-to-seven years to maturity or less, although this will depend on one’s overall investment objectives and suitability. We present several high-quality fixed income asset classes to consider.