Bond Market

In our outlook for 2025, we wrote about the following factors that we thought would impact investment returns this year: Artificial Intelligence Investments and Commercialization of AI Applications, Labor Market Conditions, Inflation, and Fiscal and Monetary Policy. We provide our latest thoughts on each of these topics in this update, after a quarter characterized by a lot of market-moving news and a corresponding increase in stock market volatility.

Our outlook for 2025 is based on the following factors that we believe are most likely to impact investment returns: Artificial Intelligence Investments and Commercialization of AI Applications, Labor Market Conditions, Inflation, and Fiscal and Monetary Policy.

The outcome of the Federal Reserve’s aggressive inflation-fighting campaign launched in 2022 is coming into sharper view. Inflation has declined from a peak of over 9% in mid-2022 to 2.5%, unemployment has increased by just a small percentage and remains near the low end of its range over the last 50 years, and theU.S. economy has continued to grow. When the Fed began its inflation fight back in 2022, few economists thought such an outcome was possible, but restoration of inflation back to about 2%, low unemployment and continued good economic growth is now very much the consensus forecast.

In our 2024 outlook that we distributed in January, we wrote about what we thought would be the most important factors hat would impact investments in 2024, including: (1) Will inflation continue to fall as expected towards theFed’s 2% target?(2) Will there be a recession?At the halfway point of 2024, we update our inflation and economic outlook based on new information and assumptions.

In our Winter 2024 outlook, we wrote about what we thought would be the most important factors that would impact investments in 2024, including:
(1) Will inflation continue to fall as expected towards the
Fed’s 2% target?
(2) Will there be a recession?
In January, a large majority of investors believed that the Fed would successfully bring inflation down from a very high level to near its 2% target by the end of 2024 while avoiding a recession. In this update, we analyze recent inflation and economic data and provide our opinions as to how it changes the outlook.