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RESEARCH // January 17, 2025
Quarterly Letter – Q4 2024: All Change
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The end of 2024 signaled fundamental change in the global landscape…

 

The most important event – for the global economy as well as the geopolitical outlook – was the November 5 election of Donald Trump, four years after he originally left the White House. But political change was not limited to the US in Q4. Across the world, from Japan to Germany to Canada, governments changed or began to topple, often in response to economic disappointment. 

 

This came as the US economy continued to outperform on growth and jobs, while inflation stayed above the Federal Reserve’s 2% price target. Despite still-tight monetary policy, American businesses showed few signs of slowing in Q4.

 

On inflation, markets have been cheered by better-than-expected underlying data for “core” price rises in December. At the end of Q4, fears that stalled progress on inflation might slow monetary easing led to a repricing of expected interest rate cuts and some wobbles in equity prices. But by mid-January, just ahead of the inauguration of President-elect Trump, these concerns were alleviated, at least for the time being.

 

In this new political environment, RockCreek sees three themes for investors to watch as the new U.S. Administration takes shape:

 

Taxes and Spending.  Tax cuts are coming in the US. The only question is timing. Republicans in Congress are divided over whether to roll the extension of the 2017 tax measures and any additional cuts into one big bill, together with measures on the border and immigration, or to address the border first and taxes later this year.

 

Tariffs, Trade and Investment. President-elect Trump has promised – or threatened – across-the-board tariffs on imports from America’s three biggest trading partners: Mexico, Canada, and China. He has also denied reports that his comments are an opening bid in a negotiation. If these tariffs are set at the levels expected, global business will be disrupted.

 

Inflation, Interest Rates and the Federal Reserve.  As long as inflation remains above target, the Fed will be reluctant to cut interest rates too rapidly. Fed policymakers in Q4 indicated that today’s rates are still above the so-called neutral rate that they believe will balance inflation and employment objectives. The Fed sees this as around 3%. This leaves room for further cuts this year, provided inflation does not stall or accelerate. But the pace of easing will be data-dependent.

 

Read the full RockCreek Q4 2024 Commentary Letter

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