A Tailored Approach for Alaska:

Whether your staff includes seasoned finance professionals or new recruits, AMLIP is a straightforward option to provide financial benefit your municipality. The enrollment process is just three steps, ensuring that all of Alaska’s municipalities and agencies can easily harness the benefits of a pooled asset fund. With tight budgets all around, municipalities, mayors, councilmembers, and staff are always looking for ways to preserve capital and safely enhance investment yields. As a safe, short-term investment option AMLIP helps maximize revenue for boroughs, cities, school districts and other state government entities.

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

The winning Bingo number is 50.
Publication produced by KeyBank Institutional Advisors

The Federal Reserve Open Market Committee voted to cut interest rates by 0.50% for the first time in four years, setting the benchmark federal funds rate target range at 4.75% to 5.00%.  This marks the official kick-off of their easing campaign since the onset of the coronavirus pandemic.

Meeting participants voted overwhelming by 11-1, with Governor Michelle Bowman opting for a quarter point reduction.

There were some minor revisions to the statement that included the introduction of “supporting maximum employment” to the language of “strongly committed” to its 2% inflation objective.  Job gains have “slowed” as opposed to “moderated” in the prior statement.  And on inflation, it “has made further progress toward the Committee’s 2% objective but remains somewhat elevated.”  These are simply acknowledgements of the realities of the evolution of the recent economic data as opposed to offering any grand forward insight.

“The Committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” was the post meeting statement by the FOMC.

As for the broader economy, the Fed stated that recent indicators suggest economic activity “continues to expand at a solid pace” and employment gains have slowed while the unemployment rate “remains low.”

The Summary of Economic Projections (“SEP”) showed a large drop across the time horizon for rates, but mostly due to a quicker start to the cutting cycle this year.  The dots reflect 50 basis points of additional easing in 2024, despite the median being revised down 75 basis points.  Looking at the distribution, 2 dots show no more cuts beyond the September meeting, 7 show just 25 basis points of cuts and just 1 shows 100 basis points.  If 1 of the 9 at 4.375% has submitted a 4.625% dot, they would have shifted the median 25 basis points higher than that level.

The median dot for 2025 was revised up to 4.125% from 3.875%, reflecting the same 100 basis points of cuts in 2025 implied by the dots from the June SEP.  The dots also show 50 basis points of cuts in 2026.  This edition also includes the first estimates of policy rates for 2027, which was unchanged from 2026 at 2.875%, which happens to be equal to the upwardly revised estimate of the long-run dot as well.

The long-run dot was revised up from 2.750% in June, 2.5625% in March and 2.500% in December 2023.  The March revision was the first time the long-run dot came in above 2.500% by any margin since March 2019, when it was on its long journey of downward revisions from the initial forecasts of around 4% back in 2012.

In each of the last 4 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.  It is possible that the Fed’s failure to achieve the inflation side of the dual mandate is rooted in underestimating the neutral rate, though it is impossible to know for certain if that is the case.  The most vocal Fed policymakers 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.

Economic projections were very little changed overall, aside from a shift higher in the unemployment rate in 2024 and 2025.  The forecast for this year was revised up to 4.4% for the end of both years from 4.0% and 4.2%, respectively.  This reflects the increase in unemployment since June, though it is somewhat surprising that the forecast for 2025 is unchanged.

GDP growth was revised down modestly to 2.0% across each of the 4 years, and the inflation data was revised down modestly to reflect the disinflation of the past few months.  Policymakers still believe they will reach their inflation goal by 2026, which is unchanged from the June SEP.

We did not expect a 50-basis point cut at the September meeting.  Since the June meeting, we have noted extensively about how the Fed’s messaging was clearly indicating a 25-basis point rate cut.  Despite no material change in the economic data since the beginning of the blackout period, it seems as though policymakers grew concerned that they were going to fall behind the curve with a smaller rate cut.  Considering the September FOMC result, we remain confident of a soft landing for the US economy.

Series I Recap

The month opened with a $824,835,922 balance and closed with a balance of $834,741,668. The seven-day effective yield ended the month at 4.93%. The monthly seven-day average effective yield for the month was 5.16%. Average maturity ended the month at 12 days.

At the end of the month, the Series I portfolio had 23% of its portfolio assets allocated to overnight investments/cash, corporate securities made up 8% of the assets, commercial paper represented 18%, CDs represented 10%, and Treasury & Agency represented 41%.

Series II Recap

The month opened with a $57,890,989 balance and closed with a balance of $58,130,430. The thirty-day SEC yield ended the month at 5.14%.

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 30% of the assets, commercial paper represented 13%, CDs represented 20%, and Treasury & Agency represented 35%.

Fund Comparison

On June 16th, 2023, the S&P AAA & AA Rated GIP Tax 30 Day Yield Index was 5.08% and the Series I Pool’s 7-day effective rate of 4.97% was on the same day. All Pool rates are quoted net of fees and expenses.