balanced fund quarterly report
September 30, 2024
Economic Commentary
After following an even path during the first half of the year, inflation levels in both the U.S. and Canada declined steadily during the third quarter. In Canada, headline CPI was 2.7% in June, followed by 2.5% in July and 2.0% in August. Inflation finally reached the Bank of Canada’s 2.0% target, representing a significant decline from the peak level of 8.1% reached in June 2022. In the U.S., inflation declined from 3.0% in June to 2.9% in July and 2.5% in August. Further declines are necessary in the U.S. in order for headline CPI to reach the Federal Reserve’s 2.0% target. However, recent declines in North American inflation has provided confidence to both the Bank of Canada and the Fed that inflation is now under control and they can comfortably lower interest rates from current levels. Inflation levels in Europe are exhibiting healthy declines as well. Inflation in the Eurozone dropped below 2.0%, with the most recent reading showing an annual rate of 1.8%. Inflation in the U.K. currently stands at 2.2%.
The U.S. Federal Reserve finally began lowering interest rates at its meeting in September. After remaining on the sidelines since COVID, the Federal Reserve began its easing cycle with a larger than expected cut of 50 b.p. Market expectations for interest rate cuts by the Fed have been extremely volatile for much of the year as inflation remained more persistent than what the Fed was hoping for during the first half of the year. As a result, overnight administered rates remained higher for longer in the U.S. Once inflation began to show steady declines, the Fed was in a better position to begin lowering rates. The Bank of Canada, which had been the first major central bank to cut interest rates with a 25 bp decline at its June meeting, continued to lower rates with 25 bp cuts at both the July and September meetings. Better progress on the inflation front has enabled the Bank of Canada to be more aggressive than the Fed in cutting interest rates this year. Both the European Central Bank and the Bank of England lowered rates by 25 bp during the quarter.
