OBSERVATIONS AND EXPECTATIONS
• U.S. economic growth should slow in the second half of 2024, but not be negative
• The unemployment rate pushed above 4% in May from the cycle low of 3.4% • Fed Funds futures are pointing to two .25% cuts this year and four next year • Intermediate-term rates have increased this year, but are lower than last year’s peak
Expected Downshift in Economic Growth
• Economists surveyed by
Bloomberg are expecting
growth to slow in the coming
quarters.
• Higher inflation and interest
rates have put a crimp in
consumer spending.
6.2%
3.3%
7.0%
-2.0%
-0.6%
2.7% 2.6% 2.2% 2.1%
4.9%
3.4%
1.3%
2.0% 1.6% 1.6% 1.8%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Q2
2021
Q3
2021
Q4
2021
Q1
2022
Q2
2022
Q3
2022
Q4
2022
Q1
2023
Q2
2023
Q3
2023
Q4
2023
Q1
2024
Q2
2024
Q3
2024
Q4
2024
Q1
2025
QoQ GDP
Estimates
SOURCE: BLOOMBERG, BUREAU OF ECONOMIC ANALYSIS,
The Unemployment Rate Climbed Above 4%
• The U.S. just finished its second longest
streak of having the unemployment rate
below 4%.
• The Federal Reserve and most economists
expect the unemployment rate to push
higher with job growth slowing later this
year.
The Fed vs. The Market
• The Federal Reserve is
expecting one .25% cut this year
to the Fed Funds Rate and four
next year.
• The Fed Funds futures market is
expecting two .25% cuts this
year and four next year to push
the Fed Funds rate down to
3.97% from its current rate of
5.38%
8 35
20 27
4 13
27 0
5 10
15 20
25 30
35 40
19471950195319561959196219651968197119741977198019831986198919921995199820012004200720102013201620192022 Number of Consecutive Months Below 4% Unemployment
SOURCE: BLOOMBERG, BUREAU OF LABOR STATISTICS
5.38%
4.98%
3.97%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
Dec-23 Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24
Current Fed Funds Rate vs. Dec 2024 Fed Funds Futures Rate vs.
Dec 2025 Fed Funds Futures Rate
Fed Funds Rate Fed Funds Dec 2024 Fed Funds Dec 2025
SOURCE: BLOOMBERG
Intermediate-Term Rates Higher In 2024
• Both the 2-year and 5-year U.S.
Treasury rates had their cycle peaks
last October at 5.22% and 4.96%,
respectively.
• Intermediate-term U.S. Treasury
rates have climbed higher this year
as market participants realized
inflation remains sticky and Fed will
cut the Fed Funds rate fewer times
than was anticipated at the start of
2024.
Takeaways • With intermediate-term interest rates near their highest levels since 2007, locking in those yields will most likely prove prudent. • It will be interesting to observe Federal Reserve policy later this year as inflation probably remains above their target, with unemployment increasing.
3.70%
3.90%
4.10%
4.30%
4.50%
4.70%
4.90%
5.10%
Dec-23 Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24
YTD 2Y and 5Y Treasury Rates
2Y 5Y
SOURCE: BLOOMBERG
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