Quarterly Letter to Members – June 2024

Safeguarding and Growing Your Municipal Savings:

AMLIP provides a trusted and safe, short-term cash management tool for Alaska’s municipalities. As both Series I (AAAm by S&P) and Series II are pooled asset funds, they seek to deliver competitive yields through prudent investments in highly-rated securities.

Pool members can be set up in both series to preserve capital and safely enhance investment yields of public dollars in alignment with your municipality’s strategic liquidity needs.

Contact Blake Phillips or Lindsey Cashman at Alaska Permanent Capital Management with any questions you might have about AMLIP.

Hawkish Tilt on the SEP.  Data Dependence Begins.
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%.  This marks the seventh consecutive pause in this tightening cycle.

The statement was mostly unchanged, but the Fed swapped out “lack” for “modest” acknowledging the recent progress on inflation.  “In recent months, there has been modest further progress toward the Committee’s 2 percent inflation objective.” In his press conference Chair Powell noted, “we welcome today’s inflation reading, hope for more like that.”

Focusing on the highly anticipated changes made to the Summary of Economic Projections (“SEP”) the shifts in the projections were more hawkish than anticipated.  Committee participants increased the 2024 projection by 0.50% to 5.1% from 4.6% from the March SEP, signaling only one projected rate cut for this year.  Within the distribution, 4 projections show no cuts at all, which is 2 more than in the March SEP.

The median projection for 2025 was revised up to 4.1% from 3.9%, reflecting a shift back to 1.0% in cuts in 2025 from 0.75%, and the 2026 median was unchanged at 3.1%.

The long-run projection was revised up to 2.8% from 2.6% in the March SEP and 2.5% in December 2023 SEP.  The March SEP revision was the first time the long-run projection came in above 2.5% by any margin since 2019.  This was the result of 3 of the 8 projections that had previously been near the low-end of the range moving higher.  At least one projection that was higher than 2.5% also appears to have moved up as well.

In each of the last three SEP’s, including this one, we have seen more shifts in forecasts for the long-run rate than we can recall for quite some time.  The Fed has taken a lot of criticism since rates peaked in mid-2023 because disinflation has been slow and stubborn.  Some have argued that the Fed’s failure to achieve the inflation side of the dual mandate is rooted in underestimating the neutral rate.  The most vocal Fed participants on the issue have been adamant in defending their views on 2.5% being the neutral rate, but it looks like their more silent colleagues are reconsidering that stance.

There are now 9 projections at 3.0% or higher, compared with 7 projections in the March SEP and 4 projections in December 2023.

The economic projections were little changed overall, aside from a shift higher in both headline and core inflation for year-end 2024 reflecting the slower progress towards the Fed’s 2.0% goal so far this year.  There is residual impact on year-end 2025 projects as well.  The forecasts continue to show that the Fed expects inflation to hit their 2.0% target by the end of 2026, which is in line with forecasts from March.

GDP growth and unemployment rate expectations were little changed across the forecast horizon.

We remain skeptical that the Fed can achieve a “soft landing” by cutting rates gradually to follow a slowly cooling economy over the next 3 years.  We caution investors to remember that the projections and the SEP are constructed under the most ideal conditions and Chair Powell has also alluded to this in many of his past press conferences.

Any opinions, projections or recommendations in this report are subject to change without notice and are not intended as individual investment advice. The information in this letter is based on data obtained from recognized sources and is believed to be reliable. Past performance is not indicative of future results.

INVESTMENTS ARE: NOT FDIC INSURED. NOT BANK GUARANTEED. MAY LOSE VALUE. NOT A DEPOSIT. NOT INSURED BY ANY FEDERAL OR STATE GOVERNMENT AGENCY

Fund Performance

Series I Recap

The month opened with a $722,994,840 balance and closed with a balance of $653,935,632. The seven-day effective yield ended the month at 5.23%. The monthly seven-day average effective yield for the month was 5.30%. Average maturity ended the month at 17 days.

At the end of the month, the Series I portfolio had 18% of its portfolio assets allocated to overnight investments/cash, corporate securities made up 13% of the assets, commercial paper represented 13%, CDs represented 9%, and Treasury & Agency represented 47%.

Series II Recap

The month opened with a $60,655,613 balance and closed with a balance of $59,402,364. The thirty-day SEC yield ended the month at 5.17%.

At the end of the month, the Series II portfolio had 2% of its portfolio assets allocated to overnight investments/cash, corporate securities made up 33% of the assets, commercial paper represented 11%, CDs represented 17%, and Treasury & Agency represented 37%.

Fund Comparison

On June 28th, 2024, the S&P AAA & AA Rated GIP Tax 30 Day Yield Index was 5.32%, the Series I Pool’s 7-day SEC effective rate was 5.30%, and the Series II Pool’s 30-day SEC effective rate was 5.49%. 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
Kachemak, City of
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 School District
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