AIA Newsletter May 2024

The AIA Dividend Portfolio Begins

Commentary

I am adding the AIA dividend portfolio this month and will avoid a very long monthly commentary. I will say that, in my opinion, the FED is becoming trapped as we may be entering a stagflationary environment in the US.

The FED would like to cut rates because the interest burden on the US debt is exploding. In addition, the US Government is on a spending binge, and it is becoming more difficult to sell the government’s debt.

From this week’s FED meeting and comments.

Even though Fed Chair Jerome Powell said, “Inflation has shown a lack of further progress... and gaining confidence to cut will take longer than thought," the Fed does not appear to have an appetite to raise rates further to try and stifle inflation.

Mr. Powell did indicate that rates likely need to stay higher for longer. It now appears there will not be any rate cuts this year (unless there is a financial train wreck). However, Mr. Powell loosened financial conditions. How did he do that?

From their previous meeting and the statements of various Fed officials, they had indicated that they might slow their balance sheet Treasury roll-off (the main part of their QT, intended to unwind the previous QE) to $30 billion per month. Instead, they decided today to take an even bigger leap and stopped at $25 billion a month.