Martin Dreier
Senior Portfoliomanager High Yield
At first glance, the January inflation figures in the U.S. look promising. However, we believe that the market consensus regarding interest rate cuts in the middle of the year remains too optimistic.
U.S. Inflation Rates, %
Source: Bloomberg; as of February 2024
For example, the annualized seasonally adjusted 3-month inflation rate (3M-SAAR) reached 3.9% in January 2024. Using the Federal Reserve Bank of Atlanta’s annualized 3-month inflation rate (3M-SAAR) adjusted for food and energy, the figure was as high as 4.8% in January, compared to 4.0% in December 2023. The rise in prices for medical supplies is having a particularly adverse effect here.
Conclusion
Although expectations for an interest rate cut as early as March have now faded, the market (based on Fed Funds futures) still expects the U.S. Federal Reserve to cut rates in May or June. However, since the latest inflation data point to certain risks regarding a further slowdown in inflation, investors should not be surprised if the Fed keeps interest rates on hold longer than the consensus suggests.
Risks
Price losses due to rising yields and/or increased risk premiums are possible. Even a total loss cannot be ruled out. Past performance is not indicative of future results, nor can future performance be guaranteed.
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