New York Life Investments’ Post

❗Fed alert❗ Nothing like an eventful December Fed meeting to keep prevent investors from slipping into the holidays too early… While the 25bp cut was entirely expected, here's what did surprise the market: The hawkish shift in expectations for the policy rate isn’t over. The Fed’s Dot Plot now implies two cuts in 2025; hawkish versus the previously priced in ~3 cuts for 2025. This is a mere continuation of the sharp 100bp – now 125bp – upward adjustment we’ve seen in easing cycle expectations since September of this year. The market is now following the Fed: Fed Funds Futures consensus has now adjusted to expect 2 further hikes in 2025, occurring in the first half. The market’s initial reaction is squarely negative: Equities were down 3% and the 10Y Treasury yield topped its post-election high and surpassed 4.5% for the first time since May of this year. These moves reflect market dissatisfaction at the likelihood of lessened policy support, paired with the unwelcome reiteration that inflation remains the Fed’s #1 concern after 100bp worth of easing. What all of this means for investors: We’ve been warning about greater yield curve volatility as we learn more about and see the implementation of the next administration’s policies, and we expect this environment to persist through the first half of 2025. No, noise is not good for investor sentiment. But the good news is that this volatility may provide buying opportunities, including second and third chances for investors to deploy cash, add duration, and lock in higher rates.