Rate Cuts: How Fast, How Big? | Chief Investment Officer

So how fast will the Federal Reserve cut and when? The latest thinking: It will decrease rates gradually, in quarter-point increments, and it will start soon.

By year-end, the interest rate drop could be three-quarters of a percentage point (75 basis points) or perhaps as much a full point, according to the futures market’s bets. Either way, hardly anyone doubts that the reduction in the Fed’s benchmark rate will begin in September, the first downward movement in the rate since the central bank began tightening in March 2022.

Importantly, futures traders, as reflected by the CME Fed Watch Tool, concur that the steps will come in increments of a quarter-point each during the year’s three remaining meetings of the Fed’s policymaking committee. That marks a change: Just one week ago, predictions favored a half-point cut in September.

Action Economics, a research firm, forecasts the Fed’s target falling to between 4.5% and 4.75% by year-end, a 0.75-point drop, then continuing downward another full point by the end of 2025. The Fed “will take advantage of the market’s expectations for cuts of up to 100 bps through year-end to ease by 25 bps also in November and December, helping protect against a hard landing in 2025,” wrote Sam Stovall, the chief investment strategist at CFRA Research.

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The Fed’s dot plot, which shows the policymakers’ consensus expectations for rates and the economy, will get even more attention than usual once it is released after the September 18 meeting.

Buoying the latest rate projection was the calm inflation news: The Consumer Price Index for July had its lowest reading since 2021 and came in slightly less than economists’ expectations of 3%.

Some viewed the surge in retail sales, up 1% last month from June, as a worrisome sign of a hotter economy that might cause some inflation pressure. But that assessment has drawn skepticism. As Piedmont Crescent Capital pointed out in a commentary, the increase was pumped up by a one-time event—a catch-up in auto sales, which previously had been held back by a June cyberattack affecting car dealerships.

Undergirding all: The overwhelming consensus is that rates are too high, now that inflation is under control, and the economy needs lighter debt payments.

Investors’ Interest Rate Expectations Unrealistic, per NEPC

Inflation Is Falling Nicely, So When Will the Fed Cut?

Tags: CFRA, CME Fed Watch Tool, Cyber Attack, Federal Reserve, inflatgion, Interest Rates, Piedmont Crescent Capital, retail sales, Sam Stovall

The Canada Pension Plan Investment Board eked out a 1% investment return during the first quarter of fiscal 2025 (ending June 30), which raised its asset value to C$646.8 billion (US$472 billion) from C$632.4 billion the previous quarter. The pension fund also promoted Caitlin Gubbels to global head of private equity.

The pension giant registered five- and 10-year annualized net returns of 7.8% and 9.1%, respectively, while the C$14.4 billion quarterly increase in assets was comprised of C$8.1 billion of net transfers from the Canada Pension Plan and C$6.3 billion in net income.

The CPPIB attributed the slight investment gain, which swung from a loss the prior-year quarter, mainly to investments in the public equity and private asset classes, particularly in credit and U.S.-dollar denominated holdings. The U.S. investments, according to the CPPIB, benefited from the U.S. dollar strengthening against the Canadian currency. However, the gains were mostly offset by government bond investments, whose prices were hurt by lowered expectations for central bank interest rates due to stubborn inflation.

“Our diversified portfolio is performing as designed with gains across most asset classes,” said CPPIB President and CEO John Graham in a statement. “We continue to prudently manage the fund to deliver value to CPP contributors and beneficiaries over the very long term.”

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The CPPIB also promoted Gubbels, its managing director and head of private equity funds, to senior managing director and global head of private equity, effective October 15. Gubbels will also join the pension fund’s senior management team, succeeding Suyi Kim, who has decided to leave CPPIB after 17 years for new global investment leadership opportunities, according to the announcement.

“Suyi leaves with our deep gratitude, having contributed significantly to the organization’s success during her 17-year tenure,” said Graham in a statement. “She opened our Hong Kong office in 2008, establishing our presence in the Asia Pacific region, and most recently led our private equity business globally out of Toronto and New York.”

Gubbels will lead the pension fund’s global private equity program and will oversee the investment teams dedicated to seeking out investments in direct private equity (done without using an outside fund), PE in Asia and private equity funds and secondaries.

“Since joining CPP Investments 14 years ago, Caitlin has played an important role in the growth and success of our private equity investments,” said Graham. “Caitlin’s proven ability to build relationships and generate returns across private equity opportunities makes her ideally suited to take on this expanded leadership role.”