"The Fed pivot in December has triggered an easing in financial conditions which can no longer be ignored," says private equity giant Apollo Global Management. As a result, the firm sees no Fed rate cuts this year.
It's a minority view, but Apollo's not alone. More contrarians have come out of the woodwork, maintaining that rates are renormalizing around today's higher levels. They're flagging everything from fiscal over-stimulation, housing strength, surging population (in Canada, not so much in the U.S.), rate insensitivity in the U.S. (due to 30-year mortgages), sticky inflation expectations, wage pressures, trade frictions, and onshoring—all of which are conspiring to slow disinflation.
The OIS and forward markets—which analysts turn to for rate predictions—are scratching their heads at this unprecedented combination of inflationary forces. There's a nagging concern that markets are not recognizing the inflation beast in the lineup.
If the consensus turns out to be wrong about monetary easing in 2024, it could rewrite the future for people's net worth. Rates are a crucial lever for home values, and home ownership is people's primary method of building wealth.
One can't help but ponder: if 5% mortgage rates theoretically became the new normal, could home prices keep reaching for the stars?
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