With an upcoming Federal Reserve meeting, the potential for interest rate cuts and ongoing speculation of its ripple economic effects, Bloomberg’s Real Yield interviewed Peter Cecchini, Axonic Capital’s Director of Research, live on Friday, January 26. The conversation aimed to provide valuable insights into the current health of the economy and ways to position portfolios along the yield curve.
“I think the biggest question that everyone needs to answer going into this year is why is the Fed going to cut rates? I think there’s a consensus that the fed will cut [rates], says Cecchini. “But the most important question to be able to answer is: Is that because the fed will be able to manage to a soft landing, or is that because there will be an economic slowdown later in the year?”
Cecchini mentions that the interest rate cuts from a couple of weeks ago are an indication that inflation is cooling. He believes many investors are determining current economic health based on asset prices. However, this might not be a strong read because consumer spending has been above earnings, which is not sustainable in the long run.
“There are underlying signs that more highly levered, economically exposed companies are at risk,” Cecchini explains. Regardless of equity indices reaching new highs, speculative loan defaults have been creeping up quickly. Furthermore, he emphasizes that although AI-focused companies are dragging the indices higher, it is important to keep this in mind when looking at overall sentiment across all asset classes.
If you have any questions about Axonic’s economic outlook throughout 2024 and what you can do to prepare your portfolio, please do not hesitate to contact us.