NEAM Insights

November Overview Labor and inflation data cooled over the month, raising the odds that the Fed may be through with its hiking cycle. However, despite market projections related thereto, the Fed is not ready to concede this position. While inflation is falling, and the labor market is slowly softening, there remains some distance between where the economy sits and the Fed’s desired targets. Until then, they see fit to remain vigilant. Read More

October Overview The question of how long the Fed will remain in restrictive territory, if not venture further, before easing continues to be debated. With the passing of time, the window for the lag for tighter policy to kick in shortens, leaving the Fed to determine if policy actions taken to date are sufficient to achieve their mandate. Although data has shown that the labor market is coming more into balance, and price gains in many areas are decelerating, economic data continues to hold up, as evidenced by the recent Q3 GDP print. The Fed remains attentive at the helm, ready to act, if necessary, with the surge in Treasury yields offering them some cover at the same time. Read More

September Overview Economic forecasts are calling for slower growth, higher unemployment and tamer inflation for 2024 as compared to 2023. This is to be expected given the monetary actions taken to date by the Fed and other major central banks. While numbers continue to trend in the right direction for the Fed, they remain cautious, intimating that they may keep the pressure on the brakes for longer than the market expected. Read More

August Overview Inflation prints of late show that the disinflation process continues. The labor market, while still experiencing historically low levels of unemployment, is directionally heading to a better supply-demand balance. Despite this, work remains to be done to move closer to the Fed’s 2% inflation target. But with monetary policy in restrictive territory, the path the Fed is walking is becoming narrower with less room for error. Read More

JULY Overview In as much as the economy continues to show resiliency despite the headwinds of increasingly restrictive monetary policy, inflation remains too high. For this reason, the Fed remains alert at the helm, working to bring down price increases to a more palatable and sustainable level while the market debates when they will achieve peak rates and finish this most recent campaign. Read More

June Overview The Fed took a breather this month. They let the market know that it would be short-lived, however. Having spooned out a good deal of tightening to date, the Fed held off, but they appreciate they may have to get back in the game if the data does not support sitting back. Although the most recent Q1 GDP figure was revised higher, the economy is decelerating, credit is tighter, and inflation is cooling. Despite this, target levels have not been reached. The Fed, therefore, took a more hawkish tone in its message, noting that more work is needed to bring prices down to their target level, and that data will ultimately determine how much more policy firming is required. Read More

May Overview With inflation still high but moderating, tighter credit standards crystallizing amongst lending institutions, and the Fed having already raised rates 500 bps in their most recent campaign, the case for a pause in rates gained ground. Nevertheless, the resilience of economic data, particularly on the employment front - despite policy actions taken to date - is testing this position. Fed commentary is mixed with some FOMC members still pushing for more hikes while others are content to hold at current levels, leaving markets to divine the Fed’s path forward. Read More

Back in the early 2000’s we began speaking with our insurance company clients about the potential benefits of membership in the Federal Home Loan Bank System. We immediately identified this program as a relatively inexpensive source of liquidity which could be particularly useful at times of capital market volatility when execution costs would be abnormally high. In addition, the low cost (collateralized) borrowing could provide opportunities to augment investment income for those insurance company clients who were interested in utilizing modest leverage to potentially improve investment income and ROE. Read More

In September, the Federal Housing Finance Agency (FHFA) released a Notice of Proposed Rulemaking (NPR) proposing to revise its regulations governing Federal Home Loan Bank (FHLB) membership requirements while seeking to address what they view as issues related to the FHLBs’ housing finance mission. This Quick Takes outlines a brief history of the FHLB, our understanding of the NPR and how, if passed, the proposed changes may affect insurance companies going forward. Read More