balanced fund quarterly report

March 31, 2024

Economic Commentary

North American inflation has improved significantly from the peak levels reached in 2022, however, levels remain higher than central banks would like to see at this point in the economic cycle. After increasing to 3.4% to end the year in both Canada and the U.S., annual inflation rates for January declined to 2.9% and 3.1%, respectively. U.S. inflation surprised on the upside again in February, with the annual rate moving up to 3.2%. Better progress has been made in Canada, with the annual inflation rate coming in at a better-than-expected 2.8%. Despite the improvements made over the past two years, inflation remains higher than the central bank target of 2%. In addition, the core rate of inflation remains higher than the headline rate, with Canadian core at 3.1% and the U.S. at 3.8%. Further improvements in core readings are required before central banks are confident that inflationary pressures have been contained. Inflation declines in Europe continue to outpace the progress made in North America as Eurozone inflation now stands at 2.6%, after peaking at 10.6%. Inflation in the U.K. is now at 3.4%. Inflation will continue to be the driving force impacting global financial markets and central bank monetary policy throughout the balance of the year.

Despite pivoting from an environment of consistent interest rate increases to one where they are contemplating the prospect of lowering rates, the Bank of Canada and the U.S. Federal Reserve kept interest rates unchanged during the first quarter. Going into the year, the U.S. Federal Reserve indicated that they could lower rates by 75 bp during 2024. Market expectations were more aggressive, calling for potentially seven interest rate cuts this year in the U.S. Given the sticky inflation that has existed so far this year, market expectations have back-tracked and are now in line with those implied by the Fed. The Fed did confirm at their most recent meeting that they were still looking to lower rates by 75 bp this year, surprising some given that persistent inflationary pressures still exist. The Fed did, however, indicate that interest rates could remain higher for longer as they scaled back the interest rate cuts expected next year. Both the European Central Bank and the Bank of England kept rates unchanged during the quarter.

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