The Takeaway
In the fourth quarter of 2024, the Federal Reserve continued its rate-cutting trajectory, implementing 25 basis points reductions in both November and December. These cuts were more modest compared with the 50 basis points reduction during the September Federal Open Market Committee, or FOMC, meeting, reflecting a measured approach. The smaller adjustments indicated the Fed's strategy to lower rates gradually, influenced by low but persistent inflation and economic activity that continued to expand at a solid pace.
US Personal Consumption Expenditure, or PCE, inflation was still above the 2% target set by the Fed.
The Morningstar US 1-3 Month Treasury Bill Index provided the best risk-return characteristics over the fourth quarter of 2024. This was followed by the Morningstar US High-Yield Bond Index. The Morningstar US Treasury Bond Index and the Morningstar US Corporate Bond Index experienced negative returns over the last three months of 2024.
The fourth quarter of 2024 witnessed the Federal Reserve cut the target fed Fund rate by 25 basis points in the month of November and December. However, on account of sticky inflation and better-than-expected economic data, the Fed signaled a much more gradual pace of monetary easing than earlier expected. The treasury term rates saw a significant rise of approximately 60-70 basis points in longer tenures, resulting in significant negative returns for the US bond market for the fourth quarter. The Morningstar US Treasury Bond Index and the Morningstar US Corporate Bond Index saw decline of 3.0%, while the Morningstar US 1-3 Month Treasury Bill Index provided the best returns of 1.2%. The Morningstar US High-Yield Bond Index posted marginal positive gains on account of improved economic outlook.
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