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Actions from both the Federal Reserve and U.S. Treasury are the latest evidence that the soft-landing narrative is intact. But the significant takeaway came from the guidance where the Fed shifted its stance to a matter of when, not if; as the central bank is now considering rate cuts rather than rate hikes. The developments are the latest signs that support our ‘greater investor optionality’ thesis and top investment ideas.

Over the past week, markets were keenly focused on macroeconomic events from the Federal Reserve (the “Fed”) and the U.S. Treasury (the “Treasury”) amidst a flurry of mega-cap earnings. At the January Federal Open Market Committee (FOMC) meeting, the Fed kept rates unchanged, as expected, removing its hiking bias and struck a more neutral tone.1 At the presser, Fed Chair Powell pushed back against a March rate cut, and subsequently, the odds fell to ~35% after being north of 70% following the December FOMC meeting (Exhibit 1).2 However, given the backdrop of resilient growth and inflation trending toward target, we expect the Fed will still cut at some point between March and June. In addition we received the Treasury’s quarterly refunding announcement. Within the statement, it updated its quarterly borrowing estimates below market expectations, and refined its quarterly auction sale outlook higher, in-line with consensus. Importantly, it noted that additional increases have likely concluded.3

Exhibit 1: The probability of a March rate cut fell with the January FOMC meeting

Considering the Fed’s rate easing bias, quantitative tightening (QT) tapering potentially starting in the spring or summer, and better-than-expected Treasury supply forecasts, yields likely remain capped with equities support amidst a soft-landing realization. We continue to like our top ideas outlined in our 2024 U.S. and International Market Outlooks.

Federal Reserve on hold but likely for just a bit longer

Three key points emerged from the January FOMC meeting:

1. The Fed dropped its tightening bias and explicitly mentioned conditions for reducing its target range. Specifically, the Fed removed “the extent of any additional policy firming” from the policy statement and included that “the Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward two percent”.4 This suggests that it is now a matter of when the Fed will cut rates, given its acknowledgement of how the risks to both employment and inflation are “moving into better balance”.5 Indeed, year-over-year (YoY) core PCE inflation is now below 3% for the first time since April 2021 and is below 2% on a three-month and six-month annualized basis (Exhibit 2).6

Exhibit 2: Core inflation is now below the Fed’s target on a three-month and six-month annualized basis

2. Powell pushed back against a March rate cut. During the presser, Powell reiterated the word “confidence” and notably said that he was not sure the committee would “gain enough confidence” on inflation to start cutting rates at its March meeting.7 However, we will receive a number of key data points between now and then – including key inflation reads on Feb. 13, Feb. 29, and Mar. 12.8 Indeed, if core PCE inflation runs at or below +0.2% month-over-month over the next five months, that would imply an annualized rate of +2.1% or less by May.9 This should continue to support the odds of the Fed beginning to cut rates at some point between the March and June meeting.

3. Powell acknowledged that the committee had a conversation around slowing the pace of QT at its January meeting. Coming into the January meeting, there were questions of whether the Fed would address the run-off of their balance sheet, or QT. The Fed did not change the QT portion of its statement but Powell noted they would have a more in-depth conversation on the topic at the March meeting.10 This aligns with market expectations that the Fed could start to slow the pace of QT from $60 billion to $30-$45 billion at some point this spring/summer.11 Greater Fed demand for Treasuries should be help restrict any moves higher in yields.

A better-than-expected refunding announcement is a net positive for yields

We also received an update from the Treasury regarding its quarterly refunding plans and marketable borrowing estimates for the February to April 2024 quarter (fiscal first quarter 2024), which, on net, was viewed positively by markets. Treasury borrowing estimates of $760 billion and $202 billion for the first and second quarters, respectively, came in lower than consensus and the Treasury’s previous forecast.12 This was due to higher cash balances and the expectation for a marginally better near-term fiscal picture

The Treasury also announced increases to its quarterly refunding auction estimates, which were in-line with the prior quarter’s increase, and noted that it does not expect further increases “for at least the next several quarters.”13 Across the key tenors – three, 10 and 30-year Treasuries – the Treasury sees upcoming February auctions sizes increasing to $121 billion from $112 billion at the November auction, with most of the heavy lifting throughout the quarter continuing to be done at the front-end of the curve (Exhibit 3).14

Exhibit 3: Treasury increases auction sizes in-line with prior quarter and tilted toward the front-end

If the Fed begins slowing QT around the May meeting, as the market currently expects, that could result in the Treasury needing to finance $150 billion less in 2024.15 This would be marginally supportive to the supply picture which is currently expected to increase by roughly $800 billion in 2024 to $1.8 trillion.16 However, the Treasury is still going to have to contend with growing fiscal deficits over the medium- to longer-term which may keep auctions sizes and supply needs elevated.

What does all of this mean for markets?

The good news for now is that with rates stabilizing and central banks clearly showing signs of easing, demand for Treasuries should further return to help absorb the increases in supply. Together, these factors should ease upward pressures on yields across the curve. Capped yields and the continued soft landing narrative realization should, in turn, support equities. All in, the latest round of macro data adds support to our thesis where we continue to see broadening opportunities. Please see our 2024 Market Outlook for our top ideas.

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1. Bloomberg, Federal Reserve, iCapital Investment Strategy, as of Jan. 31, 2024.
2. Bloomberg, iCapital Investment Strategy, as of Jan. 31, 2024.
3. Bloomberg, U.S. Treasury, iCapital Investment Strategy, as of Jan. 31, 2024.
4. Federal Reserve, Federal Open Market Committee Policy Statement, iCapital Investment Strategy, as of Jan. 31, 2024.
5. Federal Reserve, Federal Open Market Committee Policy Statement, iCapital Investment Strategy, as of Jan. 31, 2024.
6. Bloomberg, iCapital Investment Strategy, as of Jan. 31, 2024.
7. Federal Reserve, Federal Open Market Committee Policy Statement and Meeting, iCapital Investment Strategy, as of Jan. 31, 2024.
8. Bloomberg, iCapital Investment Strategy, as of Jan. 31, 2024
9. Bloomberg, iCapital Investment Strategy, as of Jan. 31, 2024
10. Federal Reserve, Federal Open Market Committee Policy Statement and Meeting, iCapital Investment Strategy, as of Jan. 31, 2024.
11. Bank of America, Goldman Sachs, iCapital Investment Strategy, as of Jan. 8, 2024.
12. Bloomberg, U.S. Treasury, iCapital Investment Strategy, as of Jan. 29, 2024. Note: Consensus expectations is based on the average forecast across Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America, and Bloomberg Intelligence.
13. Bloomberg, U.S. Treasury, iCapital Investment Strategy, as of Jan. 31, 2024.
14. Bloomberg, U.S. Treasury, iCapital Investment Strategy, as of Jan. 31, 2024.
15. Goldman Sachs, iCapital Investment Strategy, as of Jan. 12, 2024.
16. Goldman Sachs, iCapital Investment Strategy, as of Jan. 19, 2024.


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Anastasia Amoroso

Anastasia Amoroso

Anastasia Amoroso is a Managing Director and the Chief Investment Strategist at iCapital. In this role, she is responsible for providing insight on private and public market investing opportunities for advisors and their high-net-worth clients. Previously, Anastasia was an Executive Director and the Head of Cross-Asset Thematic Strategy for J.P. Morgan Private Bank, where she identified and invested in emerging technologies and disruptive trends such as artificial intelligence, decarbonization, and gene therapy. She also developed global tactical ideas and implemented institutional-level implementation across asset classes for clients. Anastasia regularly appears on CNBC and Bloomberg TV and is often quoted in the financial press. See Full Bio.

Peter Repetto

Peter Repetto

Peter is a Vice President and Investment Strategist at iCapital, focusing on developing and delivering research, investment ideas, and thought leadership content for external and internal audiences on behalf of iCapital’s Investment Strategy team led by Anastasia Amoroso, Chief Investment Strategist. Prior to joining the firm, Peter spent over eight years at Franklin Templeton Investments, where he contributed to their asset allocation strategy and macroeconomic research. Peter holds a BA in Economics from Fairfield University.

Nicholas Weaver

Nicholas Weaver

Nicholas is an Associate and Investment Strategist at iCapital, responsible for providing insights into investment opportunities across public and private markets. He works alongside Anastasia Amoroso, Chief Investment Strategist at iCapital. Prior to joining iCapital in 2021, Nicholas spent time as an analyst at a buy-side investment firm, where he contributed to equity and private market research. Nicholas holds a Bachelor of Science degree with a double major in Finance and Business Analytics & Information Technology (BAIT) from Rutgers University.