Commentary

The Fed pivots: Lower rates, higher stakes

An analysis of previous rate-cutting cycles and macroeconomic conditions suggests a wide range of potential asset class outcomes in a hard or soft landing.

By: Brian Hayes Chris Luongo Lance McInerney Andrew Dierdorf Brett Sumsion
Updated: 10/9/2024
Key Takeaways
  • Recent trends in inflation, employment, and gross domestic product (GDP) growth support a non-recessionary (soft landing) outcome.
  • Forward interest rate curves suggest that investors are expecting rate cuts to be larger than rate cuts in historical non-recessionary environments.
  • Equities have outperformed fixed income after the first non-recessionary cut, led by developed markets excluding the U.S.
  • Fixed income (as measured by the Bloomberg U.S. Aggregate Bond Index) had positive returns in non-recessionary and recessionary rate cuts and outperformed equities when the recession odds approached 60%.
  • Commodities have lagged following both recessionary and non-recessionary cuts.
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The Bloomberg U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate pass-throughs), asset-backed securities, and collateralized mortgage-backed securities (agency and non-agency).

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