Finance

Cliff Asness’ longest running multistrategy fund at AQR Capital Management returned 18.5% last year, net of fees, according to a person familiar with the performance.
Asness co-founded AQR in 1998 after a stint at Goldman Sachs.
AQR has $99 billion in assets under management as of Dec. 31.

Cliff Asness.
Chris Goodney | Bloomberg | Getty Images

Cliff Asness’ longest running multistrategy fund at AQR Capital Management returned 18.5% last year, net of fees, according to a person familiar with the performance.
The AQR Absolute Return strategy, which was created in 1998, benefited the most from profitable picks among value stocks in 2023, according to the person, who spoke anonymously because the performance details are private. The fund enjoyed its best year in 2022, rallying 43.5%.

The firm’s dedicated value strategy, the AQR Equity Market Neutral Global Value strategy, gained 20.6% in 2023, the person said. This reflects AQR’s superior stock selection as the broader Russell 1000 value index only returned 8.8% last year.
Asness co-founded AQR in 1998 after a stint at Goldman Sachs. He and his partners established the quant-driven firm’s investment philosophy at the University of Chicago’s Ph.D. program, focusing on value and momentum strategies.
AQR has $99 billion in assets under management as of Dec. 31. AQR declined to comment.
The firm’s alternative trend following strategy, the AQR Helix Strategy, posted a net return of 14.3% in 2023, the person said. The gains were fueled by alternative commodity markets, such as iron ore as well as European natural gas and power prices, the person said.
The AQR Apex Strategy, a new multistrategy fund created in 2020, gained 16.2% last year, the person said.

Still, AQR’s various funds didn’t top the broader market last year. The S&P 500 rallied 24% in 2023, boosted by mega-cap technology names. The tech-heavy Nasdaq Composite ended the year up 43.4% for its best year since 2020.Don’t miss these stories from CNBC PRO: More

As Russia continues to pound Kyiv, Western sanctions are beginning to cripple Arctic LNG 2, the aggressor’s largest gas-export project. In the Red Sea, through which 10% of the world’s seaborne oil travels, American forces are doing their best to repel drone attacks by Yemen’s Houthi rebels. On January 3rd local protests shut down production at a crucial Libyan oilfield. A severe drought in the Amazon risks hampering maize shipments from Brazil, the world’s largest exporter of the grain.image: The EconomistAnd yet, across commodity markets, calm somehow prevails. After a couple of years of double-digit rises, the Bloomberg Commodity index, a benchmark that covers raw-material prices, fell by more than 10% in 2023 (see chart). Oil prices, at a little under $80 a barrel, are down by 12% over the past quarter and are therefore well below the levels of 2022. European gas prices hover near their lowest levels in two years. Grains and metals are also cheap. Pundits expect more of the same this year. What, exactly, would it take to rock markets?After successive shocks inflamed prices in the early 2020s, markets have adapted. Demand, held back by suppressed consumption, has been relatively restrained. But it is the supply response to elevated prices, in the form of an increase in output and a reshuffling of trade flows, that makes the world more shockproof today. Investors are relaxed because supply levels for many commodities look better than they have since the late 2010s.Take oil, for instance. In 2023 increased production from countries outside the Organisation of the Petroleum Exporting Countries and its allies, a group known as OPEC+, was sufficient to cover the rise in global demand. This pushed the alliance to cut its output by some 2.2m barrels per day (b/d), an amount equivalent to 2% of global supply, in a bid to keep prices stable. Nevertheless, the market only just fell short of surplus in the final quarter. Kpler, a data firm, predicts an average oversupply of 550,000 b/d in the first four months of 2024, which would be enough to replenish stocks by nearly as much as they declined during the heated summer months. New barrels will come from Brazil, Guyana and especially America, where efficiency gains are making up for a fall in rig count.In Europe manic buying since the start of Russia’s war and a mild winter have helped keep gas-storage levels at around 90% of capacity, well above the five-year average. Assuming normal weather and no big disruptions, they should remain close to 70% full by the end of March, predicts Rystad Energy, a consultancy, easily beating the European Commission’s target of 45% by February 1st. Ample stocks will hold gas prices down, not just in Europe but also in Asia, in turn incentivising more coal-to-gas switching in power generation everywhere. This will help lower coal prices already dulled by a huge ramp-up in production in China and India.Mined supply of lithium and nickel is also booming; that of cobalt, a by-product of copper and nickel production, remains robust, dampening green-metal prices. Increased planting of grains and soyabeans (outside Ukraine) and clement weather are prompting pundits to project record output in 2024-25, after a lush 2023-24. That will push the average stocks-to-use ratio at food exporters, a key determinant of prices, from 13% to 16%, a level they last saw in 2018-19, says Rabobank, a Dutch lender.Abundant supply suggests a sedate first half of the year. After that, surpluses could narrow. Non-OPEC oil output may level off. Delays at some American liquefaction-terminal projects, which were originally set to start exporting in 2024, will frustrate Europe’s efforts to restock gas. Low grain prices will crush farmers’ margins, threatening planting. Markets will be more exposed to shocks, of which three stand out: a sharp economic rebound, bad weather and military blow-ups.Whether or not big economies avoid a recession, the pace of global growth is expected to be slow, implying modest growth in raw-material demand. Inflation is also expected to ebb, so commodities will have less appeal as a financial hedge. But a surprise is not impossible. One looks less likely in China, the usual bellwether of commodity markets, than in America, where interest rates might soon be cut and an infrastructure splurge is gathering pace. Liberum, a bank, calculates that a one-percentage-point rise in its forecast for annual global GDP growth would boost commodities demand by 1.5%.Freakish weather would have a deeper impact. Europe’s winter is not over yet, as evidenced by the cold snap that has just begun. A lasting freeze could force Europe to use an extra 30bn cubic metres of gas, or 6-7% of its usual demand, Rystad reckons. That could push the region to compete more aggressively with Asia for supplies. A climatic surprise would be more disruptive still in the wheat markets, not least if it were to affect Russia, the largest exporter, which has had bumper harvests since 2022. The larder to cover shortfalls is emptying. Owing to rising consumption, which is set to hit records this season, global wheat stocks are already headed for their lowest levels since 2015-16.What about war? Four-fifths of Russia’s food exports are ferried across the Black Sea, as are 2m b/d of crude. Naval tit-for-tats could jolt prices, though rising output from OPEC+, and international pressure to protect food shipments, would calm markets. Red Sea flare-ups, caused perhaps by a sustained American campaign against the Houthis, could cause a 15% spike in oil prices, says Jorge León of Rystad—though this may not last long either. War involving Iran and other Gulf states, where most of the unused production capacity lies today, is what would really cause chaos. The potential for terrifying prices of the sorts predicted in March 2022, when barrels at $200 seemed possible, could return.It would take something extreme—or a mixture of less extreme but still unlikely events—to blindside commodity markets. That is not quite the solace it seems. They have been blindsided by similarly improbable events several times this decade. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

It is the first trading day of the year. The stockmarket opens a whisker away from an all-time high. American equities have soared over the past 12 months, up by around 25%, with a handful of technology giants leading the charge. There is a big move in the share price of Apple, the world’s most valuable company, which sets off a move in the broader market. This dictates the tone for the rest of the day.image: The EconomistFeeling déjà vu? For these facts describe both January 3rd 2022 and January 2nd 2024. In 2022 the mood on the first trading day of the year was approaching euphoria. The s&p 500 index of large American firms rose to 4,796 points, setting a new all-time high. Apple became the first company in the world to be worth $3trn, even if its market capitalisation then dipped. After the boom of 2021, the stockmarket appeared to be signalling that it was ready to continue its charge, surging to ever-greater heights.So far 2024 is looking rather different. When an analyst downgraded Apple to a “sell” recommendation on January 2nd, arguing that a slowdown in demand for the company’s phones would persist, the world’s biggest firm saw its share price fall by 4%. The rest of the market followed in short order. Instead of surging past the high-water mark set on January 3rd 2022, stocks slipped by 0.6%. Despite the roaring bull market that marked the end of 2023, the tone became anxious. Television talking-heads began to voice obituaries for the hot streak in American shares. The mood did not improve the following day, either. Stocks slid by another 0.8% on January 3rd.image: The EconomistTo understand whether such anxiety is warranted, consider the lightning-fast rally that preceded it. Stocks jumped by 16% in the final two months of 2023, a rise that represented two-thirds of the gain for the entire year. The s&p 500 rose for nine consecutive weeks, its longest winning streak since 2004. Having dipped in and out of a true “bull market” (defined as stocks rising at least 20% above their most recent low) throughout 2023, equities now tower some 31% above that level.Many of the market moves over the past two years appear to be sensible. After Nvidia, which makes semiconductors, the next-best-performing firm, measured by its rise in market capitalisation, is Eli Lilly, which is at the forefront of another technological advance (in its case: weight-loss drugs). Meanwhile, manufacturing companies have benefited from the return of generous industrial policy under the Biden administration’s Inflation Reduction Act. Although firms that mirror the wider economy, like banks and consumer retailers, have done well recently, they remain well below their levels in early 2022. Vaccine-makers such as Moderna and Pfizer have seen their prices collapse, reflecting the fall in the importance of covid-19. As such, the overall picture is not that of a market gripped by irrational exuberance.But the recent surge has been broad-based, with nearly all types of firms soaring (see chart 1), which reflects economic conditions. Growth has been better than expected. After cutting earnings forecasts through most of 2023, analysts became more optimistic. Annualised core inflation, the Federal Reserve’s preferred measure, has more or less been on target for the past three months (see chart 2). All this has led to a big decline in interest-rate expectations. In October investors expected that one-year interest rates would be close to 5% towards the end of 2024. After lower inflation data and a doveish set of forecasts from the Fed, investors now think that they will be just 3.5% (see chart 3). They expect the Fed to cut as soon as March, and to keep cutting at almost every meeting in 2024.Yet nerves are understandable. Financial markets often overshoot. And a lengthy hot streak is a sign that such an overshoot may have occurred. The most obvious risk to the bull market is if any of the rosy economic indicators become gloomier in 2024. The combination of falling rates, slow inflation and steady growth is Utopian for investors. Were strong growth to continue for too long, though, the Fed might be slower to cut rates than they hope. With less relentlessly upbeat news, it would only be natural for the market to give up some of its gains. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Ensconced in a lorry, hidden from the enemy by the brow of a hill, the young Robert Solow decoded the radio signals of Nazi platoons across Italy. “We were very, very good at it,” he said. The trick was to get close to the enemy but not too close: near enough to pick up their transmissions, but not so near as to risk capture.The codes were not fancy—it was “combat stuff”. But if they could be broken quickly, they might reveal an ammunition delivery that could be thwarted. The radiomen were not fancy either. Most were high-school graduates. Even Solow, who would go on to earn a Nobel prize in economics, the Presidential medal of freedom and a Portuguese knighthood, before his death on December 21st 2023, was “middle-middle-class”. He was educated at Brooklyn state schools. He preferred softball to books, and was destined for Brooklyn College until a teacher spotted his potential, broadened his reading, and encouraged him to apply to Harvard University, which he joined two years early and rejoined after the war.Solow’s years as a soldier only strengthened his egalitarian streak. He declined to become an officer, so he would not have to boss anyone around. When the Massachusetts Institute of Technology (mit) offered him a job in 1949, he asked what the lowest paid professor earned, and accepted the same. When he served in President Kennedy’s Council of Economic Advisers, the Swiss embassy wanted to know his protocol rank. His answer was that he was a full professor at MIT and the government had no rank as high. Informed in the predawn hours in October 1987 that he had won the Nobel prize, his first instinct was to go back to sleep.What he craved was more precious than prizes: the esprit de corps that comes from membership of a small, highly motivated band of colleagues. “If you’re in a group that is doing good work, it’ll have a high morale. And if it has high morale, it’ll do good work,” he once said. As an economist, he liked formal models and mathematics. But nothing too fancy. Over-refinement reminded him of the man who knew how to “spell banana” but did not “know when to stop”. His strategy was to break big questions—about growth, resources, unemployment—into littler ones, in the hope that small answers would aggregate into larger ones.The MIT culture he embodied disdained hierarchy, cherished collegial lunches and made time for students, many of whom became illustrious friends. Four of Solow’s students later received their own sleep-disturbing calls from Sweden. Economics, Solow maintained, was a “handicraft” industry, often driven by the “extraordinarily powerful research apparatus” of one professor and one undergraduate assistant.Something he liked about academia was that ideas, no matter how prestigious their source, could be scrutinised by anyone. His own criticisms were energetic and witty, which could make them harder to take. He found the “freshwater” school of macroeconomics, identified with the University of Chicago, preposterous, especially in its early incarnations, which assumed a “representative agent” could stand in for the many actors in an economy. To get into a technical discussion with freshwater types was like discussing cavalry tactics with someone claiming to be Napoleon, he said. The claim is absurd, however well they know their stuff.The work that made his name began as criticism of the growth theories of the 1930s and 1940s. In these, investment added both to national spending and the economy’s productive capacity. There was no guarantee these additions to demand and supply would stay in line with each other. Moreover, excessive spending, by boosting demand, would inspire firms to invest even more, whereas inadequate investment would induce firms to spend still less. The economy was for ever poised on a “knife-edge” between deepening unemployment or intensifying labour shortages.This precariousness was hard to square with the relatively stable progress of advanced economies like America, where even the Great Depression eventually ended. Solow showed that the knife-edge disappeared if economies could vary the capital-intensity of production. Strong investment would not then be destabilising. It would merely result in higher capital per worker.High investment would not, however, result in faster growth over the long run. At some point, capital would run into diminishing returns, leaving growth to be dictated by other factors. Solow calculated that capital accumulation could explain less than 13% of the growth in income per person in America from 1909 to 1949. The remainder was attributable to other forces, which he loosely labelled “technical change”. This vast unexplained portion of growth became known as the “Solow residual”.Tough paternal loveAlthough his work created reams of subsequent research, the father of growth theory was not impressed by many of his progeny. He was sceptical of statistical exercises that dissected growth rates across countries at every stage of development. Nor had he intended to imply that technological progress, which he did not model, fell entirely outside economics. A lot of innovation was “dumb luck”. And much of it emerged on the factory floor, “invented” by unheralded foremen. But some was the result of profit-driven investment in research. Later attempts to create formal theories of technological progress nevertheless asked more questions than they answered, he argued.Part of the problem was that innovation is often peculiar and particular, whereas growth theorists strive for generality and abstraction. Solow, who had himself observed the research labs at General Motors and collaborated with the McKinsey Global Institute on industry-level studies of productivity, thought model-builders could learn from case studies and business histories. The aim was to “extract a few workable hypotheses” without getting lost in the detail. To understand how the economy works, to decode its secrets, you need to get up close, but not too close. ■Read more from Free exchange, our column on economics:Where does the modern state come from? (Dec 20th)How to put boosters under India’s economy (Dec 14th)At last, a convincing explanation for America’s drug-death crisis (Dec 7th)For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter More

Median FTSE 100 CEO pay (excluding pension) currently stands at £3.81 million ($4.84 million), 109 times the median full time worker’s pay of £34,963.
The Trades Union Congress, which represents 48 member unions across the U.K., said Thursday’s figures showed the Conservative government was presiding over “obscene levels of pay inequality.”

Skyscrapers in the Canary Wharf financial, business and shopping district in London, UK.
Bloomberg | Bloomberg | Getty Images

The average FTSE 100 CEO will have earned more this year than the median full-time worker’s annual salary by 1 p.m. London time on Thursday, according to estimates from the High Pay Centre think tank.
The U.K.’s top bosses will surpass the milestone an hour earlier than they did in 2023, the calculations suggest, while leading bankers will exceed it on Jan. 17.

The calculations are based on the High Pay Centre’s analysis of the most recent available CEO pay figures from British blue chip companies’ annual reports, compared with government data on pay levels across the U.K. economy.
Median FTSE 100 CEO pay (excluding pension) currently stands at £3.81 million ($4.84 million), 109 times the median full time worker’s pay of £34,963, the think tank said. This represents a 9.5% increase on median CEO pay levels as of March 2023, while the median worker’s pay has increased by 6%.
“Lobbyists for big business and the financial services industry spent much of 2023 arguing that top earners in Britain aren’t paid enough and that we are too concerned with gaps between the super-rich and everybody else,” said High Pay Centre Director Luke Hildyard.
“They think that economic success is created by a tiny number of people at the top and that everybody else has very little to contribute. When politicians listen to these misguided views, it’s unsurprising that we end up with massive inequality, and stagnating living standards for the majority of the population.”
Leading business and finance figures in the U.K. in 2023 called for an increase in remuneration for British CEOs. The High Pay Centre highlighted that in December, Legal and General Investment Management adjusted its executive pay guidelines to permit companies it invests in to offer more generous incentive payments.

In May, London Stock Exchange CEO Julia Hoggett argued that pay levels for top executives were too low, and pose a risk to the U.K.’s ability to attract and retain elite domestic and international talent, in turn jeopardizing the economy.
“And yet, very often, this talent objective is hampered by the advice and analysis of the proxy agencies and some asset managers voting against executive pay policies even when those pay levels are significantly below global benchmarks,” she said in a post on the exchange’s website.
“Often the same proxy agencies and asset managers that oppose compensation levels in the UK support much higher compensation packages in different jurisdictions, notably in the U.S.”
S&P 500 CEOs stateside earned an average of $16.7 million in 2022 compared to an average full-time worker’s annual salary of $61,900, according to the American Federation of Labor and Congress of Industrial Organizations.
Hoggett said a “constructive discussion with all stakeholders about a topic that tends to generate emotion and strong views” was essential if the U.K. is to be placed on a competitive footing internationally.
‘Obscene levels of pay inequality’
The Trades Union Congress, which represents 48 member unions across the U.K., said Thursday’s figures showed Britain’s ruling Conservative government was presiding over “obscene levels of pay inequality.”
“While working people have been forced to suffer the longest wage squeeze in modern history, City bosses have been allowed to pocket bumper rises and bankers have been given unlimited bonuses,” TUC General Secretary Paul Nowak said in a statement.
A spokesperson for the U.K. Treasury was not immediately available to comment when contacted by CNBC.
U.K. workers and households have endured a historic cost of living crisis over the last two years, while the tax burden continues to grow and is expected to hit a post-war high of 37.7% of gross domestic product in 2028/29, according to the independent Office for Budget Responsibility. This is despite recently announced cuts to National Insurance tax on workers.
Sharon Graham, general secretary of Unite, one of the U.K.’s largest unions with over 1.2 million members, said the union would “not tolerate employers who want one rule for the bosses and another for the workers.”
“These CEOs need to get their snouts out of the trough and give their employees a proper piece of the pie. Unite is on a mission to make work pay in this country and where employers have ability to pay, we will continue to demand and win proper pay rises for our members,” she added. More

Scrapped cloud IPO plans and management shakeup in the last year reflect bigger problems for a company that has served as a bellwether for foreign investors in China.
The stock has plunged to below $77, down from more than $300 a share in 2020.

Signage for Alibaba Group Holding Ltd. covers the front facade of the New York Stock Exchange November 11, 2015.
Brendan McDermid | Reuters

BEIJING — It’s been a tumultuous 12 months for Alibaba, casting doubt on the future of the tech giant just as artificial intelligence is taking off.
The company’s cloud computing unit was poised to capture AI’s growth for investors in a public listing, until Alibaba pulled those plans in November. The Group’s U.S. market value fell below that of e-commerce rival PDD, signaling struggles in the industry that had propelled Alibaba onto the global stage with the world’s largest IPO in 2014.

On the political front, Alibaba was a poster child for China’s crackdown on internet tech companies — receiving a record fine of $2.8 billion for alleged monopolistic behavior in 2021. Slowing economic growth hasn’t helped its business either.
But the scrapped cloud IPO plans and management shakeup in the last year reflect bigger problems for a company that has served as a bellwether for foreign investors in China. Alibaba’s stock has plunged to below $77 a share, down by 75% from more than $300 in 2020.
“I think there are some deep internal issues. And so there must now be … a clear internal fight between how they’re going to get out of this because they’re really slipping,” said Duncan Clark, an early advisor to Alibaba and now chairman of Beijing-based investment advisor BDA.
“The core to me is their eroding market position, what they are doing in terms of video, livestream and how they respond to Douyin, plus how they manage all these disparate groups and all the management turmoil,” Clark said. ”It’s a mess basically.”

Douyin, the domestic Chinese version of ByteDance’s TikTok, has taken off in China as a platform for the surging livestream sales industry. Chinese consumers, who are increasingly hunting for bargains, have also turned to bargain hunting on Pinduoduo.

Founded in 1999 by Jack Ma, Alibaba is a far older company than ByteDance or PDD.
“Personnel-wise there are people that are leaving the company, they may feel the company is so big and bureaucratic, that is a reality,” said Brian Wong, former Alibaba Group vice president and author of the “Tao of Alibaba,” published in November 2022.

Management shake-up centered on cloud

Are they too big? That was the charge from the government before, but now the question is are they nimble enough, are they able to compete enough in the marketplace?

Duncan Clark
BDA, chairman

“Are they too big? That was the charge from the government before, but now the question is are they nimble enough, are they able to compete enough in the marketplace?” he said. Clark also wrote “Alibaba: The House That Jack Ma Built,” published in 2016.

Cloud competition from Huawei

Alibaba has been an industry leader in the cloud business.
The company remained the largest player in China’s cloud market in the third quarter, followed by Huawei and Tencent, according to Canalys.
But the research firm predicted that Huawei’s market share will gradually increase, said analyst Yi Zhang.
She pointed out the telecommunications company started in 2022 to focus on improving its engagement with business partners — via a strategy of developing an ecosystem of experts and developers. In contrast, she said Alibaba’s and Tencent’s cloud units only started pursuing a similar strategy in 2023.
Such an approach can pay off in a slowing cloud services market that Canalys said is “relying heavily on government and state-owned enterprises to drive growth.”
Chinese business news site 36kr reported in January last year, citing sources, that government customers closed cloud deals with Huawei, after almost buying from Alibaba.
Alibaba and Huawei did not respond to a request for comment on this story. Alibaba in November blamed U.S. restrictions on chip sales to China for the decision to pull the cloud IPO.

Read more about China from CNBC Pro

Alibaba said its cloud business revenue grew by just 2% year-on-year in the quarter ended Sept. 30. Since the quarter ended June, the company has included cloud revenue from business with other parts of Alibaba Group.
BDA’s Clark said his firm’s research found that Alibaba tried to grow its cloud business by taking away big clients from third-party resellers. Those resellers were other companies that had acted as distributors or agents for Alibaba cloud and received commissions.
“It may be like a botched go-to-market strategy, or reseller strategy, because a lot of those resellers … became very upset and some of them are now going to work with other players,” Clark said. “They were supposed to be able to focus on smaller companies rather than the big ones that were taken away but that didn’t materialize. It’s a very tough market.“

Global IPO market slump

Alibaba still plans to list its Cainiao logistics business, and its Freshippo grocery store chain. But it’s been a tough IPO market, especially for Chinese companies wanting to list overseas.
The Information reported in November, citing sources, that an international investment firm was only willing to value Alibaba’s cloud unit at less than $25 billion, far below the $40 billion the company had wanted.
Alibaba “has a massive base to work from in terms of customers and data, and that is a treasure trove of any AI operation. They still have some amazing minds in the organization,” former executive Wong said.
“I think all the raw materials are there, it’s question of how do they [execute] this in a time of a critical moment,” he said, noting that to him, Alibaba is “getting its house in order to prepare for the next big thing.” More

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It’s a level not seen since George W. Bush was president.
Wall Street forecaster Jim Bianco is predicting the benchmark 10-year Treasury note yield will hit 5.5% this year — its highest level since May 2001.

A major part of his thesis is built on the economy’s strength and resiliency.
“I don’t think the economy is hurt by 5% interest rates. I don’t think the economy is really hurt by 7%, maybe high 7%, mortgages,” the Bianco Research president said on CNBC’s “Fast Money” on Wednesday. “I don’t think something is broken because of these rates.”
Bianco sees inflation bottoming around 3% and demand holding stable as catalysts for rebounding yields.
“You add the two together, you get 5.5%,” he said. “That’s where I come up with 5.5% for the yield. That’s nominal GDP. The 10-year yield should approximate where nominal GDP is.”
Bianco thinks the rate on the 10-year Treasury will reach 5.5% as early as summer. He correctly predicted last fall’s yield spike above 5%.

His latest forecast includes the impact of the Federal Reserve potentially cutting interest rates three times this year.
“The Fed may be a little stickier in cutting rates. It doesn’t mean they won’t cut rates. It just might not be as aggressive as everybody says,” said Bianco, who warned in late 2020 on CNBC that there would be “higher inflation for the first time in a generation.”
As of Wednesday’s market close, the 10-year yield was yielding 3.9%.
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Federal Reserve officials in December concluded that interest rate cuts are likely in 2024, though they appeared to provide little in the way of when that might occur, according to minutes from the meeting released Wednesday.At the meeting, the rate-setting Federal Open Market Committee agreed to hold its benchmark rate steady in a range between 5.25% and 5.5%. Members indicated they expect three quarter-percentage point cuts by the end of 2024.However, the meeting summary noted a high level of uncertainty over how, or if, that will happen.”In discussing the policy outlook, participants viewed the policy rate as likely at or near its peak for this tightening cycle, though they noted that the actual policy path will depend on how the economy evolves,” the minutes said.Officials noted the progress that has been made in the battle to bring down inflation. They said supply chain factors that contributed substantially to a surge that peaked in mid-2022 appear to have eased. In addition, they cited progress in bringing the labor market better into balance, though that also is a work in progress.The “dot plot” of individual members’ expectations released following the meeting showed that participants expect cuts over the coming three years to bring the overnight borrowing rate back down near the long-run range of 2%.”In their submitted projections, almost all participants indicated that, reflecting the improvements in their inflation outlooks, their baseline projections implied that a lower target range for the federal funds rate would be appropriate by the end of 2024,” the document said.However, the minutes noted an “unusually elevated degree of uncertainty” about the policy path. Several members said it might be necessary to keep the funds rate at an elevated level if inflation doesn’t cooperate, and others noted the potential for additional hikes depending on how conditions evolve.”Participants generally stressed the importance of maintaining a careful and data-dependent approach to making monetary policy decisions and reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the Committee’s objective,” the minutes stated.Despite the cautionary tone from Fed officials, markets expect the central bank to cut aggressively in 2024.Fed funds futures trading points to six quarter-point cuts this year, which would take the fed funds rate, which primarily sets what banks charge each other for overnight loans but also influences multiple consumer debt products, down to a range between 3.75%-4%.Earlier Wednesday, Richmond Fed President Thomas Barkin also expressed caution about policy, noting the number of risks inherent in trying to guide the economy to a soft landing.The minutes indicated that “clear progress” had been made against inflation, with a six-month measure of personal consumption expenditures even indicating that the inflation rate has edged below the Fed’s 2% target.However, the document also noted that progress has been “uneven” across sectors, with energy and core goods moving lower but core services still moving higher.Officials also addressed the Fed’s effort to reduce the bond holdings on its balance sheet. The central bank has shaved about $1.2 trillion by allowing maturing proceeds to roll off rather than reinvesting them as usual.Several FOMC members said it likely would be appropriate to wind down the process when bank reserves “are somewhat above the level judged consistent with ample.” Those officials said discussions would begin well in advance of stopping the process so the public had plenty of notice.
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