Equity markets have been strong recently, as the equity risk premium has fallen.
The consensus expects more than 150 basis points (bps) of US interest rate cuts in 2024, which is more than the Federal Reserve (Fed) has indicated.
The US high yield credit spread, the best indicator of risk appetite, shrank from 600bps to 350bps over 2023.
Monetary policy works with a lag: we have not yet felt the full effect of restrictive policy.
US inflation is falling: the Fed forecasts core inflation of 3.2% at end-2024, and 2.4% at end-2025.
Just as it takes a long time for rises to have an impact, so it will for cuts. The Fed forecasts restrictive policy even in 2025.
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21.03.2024
Columbia Threadneedle Investments
All eyes on quality defensives
