Series II is Open for Deposits
Series II seeks to attain the highest level of return consistent with the objectives of preservation of capital and liquidity.
To read about Series II visit amlip.org and find the Series II Supplement document.
Contact Blake Phillips at blake@apcm.net or Lindsey Cashman at lindsey@apcm.net at Alaska Permanent Capital Management with any questions you have about joining Series II.
Quarterly Letter to Members – December 2023
This is what it sounds like, when doves fly
Publication produced by KeyBank Institutional Advisors
The FOMC unanimously voted to hold the benchmark federal funds rate unchanged, keeping the target range at 5.25% to 5.50% at the final policy meeting of 2023. This decision was in line with market expectations and marked the third consecutive pause.
The statement was broadly unchanged, however it noted that economic growth has slowed from third quarter. In addition, while the labor market has moderated since the beginning of 2023, employment gains remain strong as the unemployment rate has remained low at 3.7%. Inflation has also eased over the last year but remains elevated, Chairman Jerome Powell stated in his press conference.
In the Chairman’s words, “The U.S. banking system is sound and resilient. Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.” Future policy decisions will be data dependent, and participants will scrutinize the incoming economic data to determine if additional tightening is appropriate. Fed participants do not want financial conditions to ease too much further, so they are keeping their options open for another rate hike as much as possible. However, given the recent progress in the economic data towards their dual mandate goals, it seems the writing is on the wall that this hiking cycle is over.
The SEP was updated at this meeting. Participants expect the median policy fed funds rate to be 5.4% in 2023, then decrease to 4.6% in 2024 and 3.6% in 2025. Additionally, the Fed’s dot plot suggests that eight of the 19 participants are forecasting the policy rate to be above the 2024 median, and five are expecting it to be below. This is the first time the dots for 2023, 2024, and 2025 have been forecasted lower.
The key takeaway is clear: The new dot plot was notably dovish versus the prior one, implying three interest rate cuts next year. It still implies fewer rate cuts than the more than four cuts that are expected by the market, however it confirms that the FOMC has become comfortable with inflation and is moving closer to cutting rates, not because the economy is weakening, but rather because the Fed believes it can afford to recalibrate policy.
As evidence, also included in their Economic Projections: The U.S economy is expected to slow by 2.6% for 2023 and 1.4% in 2024 (i.e., slowing growth but no recession). Inflation projections were also lowered, as the Fed’s preferred inflation gauge, the Personal Consumptions Expenditures (PCE) price index, is expected to rise 2.8% in 2023, 2.4% in 2024, 2.1% in 2025, and 2.0% in 2026.
Lastly, the Fed expects the unemployment rate will climb to 3.8% this year and 4.1% in 2024, further highlighting a slowdown but not a stalling out in the all-important labor market.
At this point, it is still unclear if the Fed can achieve a soft landing, cutting rates gradually to follow a slowly cooling economy over the next three years. It is important to remember that the SEP and the dot plot are constructed under the most ideal conditions.
The U.S. stock market reacted positively to the news, with the Dow surging above 37,000 for the first time. Treasury yields fell, and bond prices rose across the board. The 10-year Treasury yield tumbled 12 basis points to below 4.09%. The 2-year Treasury yield shed about 18 basis points to approximately 4.55%, while the 30-year Treasury bond declined by more than 7 basis points to 4.23%. The U.S. Dollar Index, a gauge of the greenback against a basket of currencies, slid by 0.5% to 103.30.
In sum, the markets’ reaction was unequivocally one of “risk on,” as if to celebrate the possible conclusion of the Fed’s tightening campaign. Such optimism should not be extrapolated too far, in our view, for as we noted above, there may be a limit to how much easing in financial conditions the Fed will be willing to tolerate.
Series I Recap
The month opened with a $797,862,278 balance and closed with a balance of $785,813,599. The seven-day effective yield ended the month at 5.35%. The monthly seven-day average effective yield for the month was 5.33%. Average maturity ended the month at 28 days.
At the end of the month, the Series I portfolio had 13% of its portfolio assets allocated to overnight investments/cash, corporate securities made up 8% of the assets, commercial paper represented 7%, CDs represented 7%, and Treasury & Agency represented 65%.
Series II Recap
The month opened with a $48,253,292 balance and closed with a balance of $47,980,756. The thirty-day SEC yield ended the month at 5.49%.
At the end of the month, the Series II portfolio had 1% of its portfolio assets allocated to overnight investments/cash, corporate securities made up 34% of the assets, commercial paper represented 9%, CDs represented 23%, and Treasury & Agency represented 33%.
Comparisons
On December 31st, 2023, the S&P AAA & AA Rated GIP Tax 30 Day Yield Index was 5.43%, the Series I Pool’s 7-day SEC effective rate was 5.35%, and the Series II Pool’s 30-day SEC effective rate was 5.80%. All Pool rates are quoted net of fees and expenses.
AMLIP Board Members
Cheyenne Heindel – President
Matanuska-Susitna Borough
Melissa Haley
City & Borough of Sitka
Mason Villarma
City & Borough of Wrangell
Kris Erchinger
City of Whittier
Angie Flick – Vice President
City & Borough of Juneau
Jody Tow – Treasurer
Petersburg Borough
Brennan Hickok
AMLJIA
Nils Andreassen – Executive Director
Alaska Municipal League
AMLIP Membership
Adak, City of
AIDEA
Akutan, City of
Alaska Association of Municipal Clerks
Alaska Govt Finance Officers Association
Alaska Municipal League
Alaska Municipal Management Association
Aleknagik, City of
Aleutians East Borough
AML/JIA
Anchorage Community Development Corporation
Angoon, City of
Annette Island School District
Atka, City of
Atqasuk, City of
Bethel, City of
Brevig Mission, City of
Bristol Bay Borough
Chevak, City of
Chuathbaluk, City of
Cold Bay, City of
Cordova, City of
Delta Junction, City of
Denali Borough
Dillingham, City of
Eagle, City of
Eek, City of
Egegik, City of
Elim, City of
Fairbanks North Star Borough
Fairbanks, City of
False Pass, City of
Fort Yukon, City of
Galena, City of
Gustavus, City of
Haines, City and Borough
Homer, City of
Hoonah, City of
Huslia, City of
Juneau, City and Borough
Kake City School District
Kenai Peninsula Borough
Kenai, City of
Ketchikan Gateway Borough
King Cove, City of
Kodiak Island Borough
Kodiak, City of
Kotzebue, City of
Koyuk, City of
Manakotak, City of
Marshall, City of
Matanuska-Susitna Borough
McGrath, City of
Mekoryuk, City of
Mekoryuk, Village of
New Stuyahok, City of
Nome, City of
North Pole, City of
Northwest Arctic Borough
Nulato, City of
Old Harbor, City of
Palmer, City of
Pelican City School District
Pelican, City of
Petersburg Borough
Pilot Station, City of
Pribilof School District
Quinhagak, City of
Sand Point, City of
Selawik, City of
Seldovia, City of
Seward, City of
Sitka, City and Borough
Soldotna, City of
Southwest Alaska Municipal Conference
St. Paul, City of
Tenakee Springs, City of
Toksook Bay
Unalakleet, City of
Unalaska, City of
Upper Kalskag, City of
Utqiagvik, City of
Wasilla, City of
Whale Pass, City of
Whittier, City of
Wrangell School District
Wrangell, City and Borough
Yakutat, City and Borough
