Flash Macro: U.S. FOMC | KKR

The March FOMC statement and dot-plot, as well as Chair Powell’s comments, support our base case that the Fed initiates gradual cuts in 2H24 in response to cooler inflation and easing labor market conditions. At the same time, we see signs that the FOMC is adjusting to the reality that achieving two percent inflation will be really difficult this cycle. We continue to think that we have permanently exited the low-growth, low-inflation, low-rate environment of 2010-2019.

Importantly, the implications of this acknowledgement cut both ways, including higher resting rates for both nominal GDP and interest rates. Consistent with this view, this new normal has material implications for asset allocation (hence, why we have been calling this cycle a Regime Change).