Focused on the Fed

Question: What's your outlook for 2024?

Susan Hill: As we're looking forward to this year, one of the things we're focused on is the Federal Reserve. We very well may have seen the last of the Fed tightening cycle, with the last move from the Fed coming at the end of July when they raised the Fed funds target range 5.25% to 5.5%. Right now, we think the Feds contend to stay on hold for an extended period of time, leading to our expectations of high rates for longer. The market though has a different perception. The market has fast forwarded to the end of the story though, in spite of the fact that GDP growth in the third quarter of 2023 was over 5% and the consumer remains relatively strong and inflation remains elevated relative to the Fed's 2% target range. The market's already leaning towards the Fed easing policy as soon as the first half of 2024. At Federated Hermes, we believe that the Fed will remain strong in its resolve to make sure that inflation has been defeated. We're not looking for the first rate cut in this cycle until the second half of the year. Another thing I'm watching in 2024 is treasury supply. In 2023, Washington dysfunction took center stage, both with respect to the threat of a debt ceiling crisis in the middle part of the year, and with the threat of a government shutdown towards the end of the year. In 2024, I expect treasury supply to remain robust as the treasury's financing needs remain really quite large. So with the Washington dysfunction out of the way, this treasury supply should give us relative value opportunities on behalf of our government money market funds to add to average maturities in the context of a Federal Reserve that we expect to be on the sidelines throughout this time period.