Moving toward neutral

Key takeaways

• Federal Reserve Chair Jerome Powell’s remarks this week (Dec. 4^th) acknowledged the stronger than anticipated U.S. growth momentum vs. what the FOMC expected when it last provided quarterly economic projections in September. Chair Powell’s remarks were closely watched following Fed Governor Chris Waller’s comments earlier in the week, where he noted the current level of monetary policy is “significantly restrictive”. With 4Q2024 U.S. real GDP tracking at an above-trend pace of 3.2%, many market participants have questioned: is the current stance of monetary policy really that restrictive? And is the “neutral” rate of policy higher than believed? In his remarks, Chair Powell specifically referenced the economic pressures facing low-income consumers – reflective of the persistent pattern of bifurcation we have flagged in recent quarters.
• We still expect the FOMC to cut by 25bp at the December meeting. But in 2025, the forward path for monetary policy is much more uncertain, given the potential for significant policy shifts. For corporate credit, growth is key. Fewer – or slower – Fed rate cuts in response to strong economic growth can likely be easily digested by credit spreads (this is reflected in current valuations). By contrast, fewer – or slower – Fed rate cuts because of reaccelerating inflation would be a much less supportive backdrop for risk assets, especially if coupled with weaker growth.
• In this week’s Global Credit Weekly, we take stock of the most recent company commentary on the topic of potential tariffs. Key takeaways from our review of 26 U.S. companies’ transcripts (across 16 subsectors) include: (1) despite trade policy uncertainty, many businesses feel well-equipped to accommodate tariffs, should they be implemented; (2) over the past few years, many businesses have invested in supply chain resilience (over efficiency); further, some sectors actually see a potential benefit from broader supply chain disruptions; and (3) certain sectors (i.e., energy and materials) expressed confidence in the next administration’s sector-specific policy views and noted this clarity supports their willingness to expand business investment.

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Past commentaries

• Week of November 21st
• Week of November 14th
• Week of November 7th
• Week of October 31st
• Week of October 24th
• Week of October 17th
• Week of October 10th
• Week of October 3rd
• Week of September 26th
• Week of September 19th
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• Week of March 7th
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• Week of February 22nd
• Week of February 15th