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A great deal of the speech was given to tracing the path of inflation since the pandemic.

 This included an explanation for the initial - incorrect - pronouncement by the Fed that inflation would be ‘transitory’ (more on this at the end of the article).

In terms of the present day, however, Powell concluded that inflation appears to be on ‘a sustainable path’ to the target level of 2%. As a result, he continued, it is time for the Fed to rebalance its focus towards its other mandate, which is to promote maximum employment.

The unemployment rate, while historically low at 4.3%, is on the rise as companies post fewer vacancies. If the Fed feels that the current interest rate is likely to harm employment, Powell made it clear that it would not hesitate to lower its policy rate accordingly. He emphasized that the central bank has ‘ample room’ to respond to such threats if they emerge.

Powell left no doubt that rate cuts are likely on the horizon, stating, “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks."

While he did not provide a specific timeline, his message was clear.

So far as the wider market is concerned, the question is no longer whether, but how quickly the Fed will ease the target rate.

Markets are currently predicting that rates will be at least two percentage points lower than the current level of 5.25-5.5% by the end of next year. A rate cut at the next Fed meeting on September 17 and 18 is now seen as “nailed on”, with just over a third of investors predicting a 50 bps cut.

In the media, all the focus is on the prospect of when and by how much rates will be slashed in the short-term. From a longer-term perspective, the most interesting question addressed in the speech was largely overlooked in the market commentary.

Namely, why did the Federal Reserve - along with the many other experts and institutions on what Powell jokingly referred to as ‘The Good Ship Transitory’ - fail to predict the inflation crisis in the first place?

The technical explanation is complex, but it boils down to the unpredictability of human psychology. Inflation is as much a question of ‘expectations’ (a mental factor - hard to predict and control) as it is about numerical, quantifiable dimensions such as the money supply and trade dynamics.

Powell’s prescription to avoid similar errors in future is simple: ‘humility’.

Investors should avoid adopting models and theories that are ultimately limited in their ability to explain the world. The map, as the saying goes, is not the territory.

Discover Insights from the Latest Jackson Hole Economic Symposium

The private credit market has seen rapid expansion, with PitchBook estimating its current value at approximately $1.6 trillion, including around $500 billion in dry powder. This represents a nearly fourfold increase since 2013. The US leads with about $1.1 trillion, while Europe holds most of the remaining market share.

Despite this growth, industry leaders like Blackstone view private credit as still in its early stages. Michael Zawadzki, Blackstone Credit and Insurance’s global chief investment officer told Bloomberg Television that the market could reach $25 trillion.

 This projection reflects the need for financing data centers and the energy transition.

Figure 1: Private-debt institutional fund AUM and dry powder ($bn)

Higher base rates, a shift from banks to private lenders, and an increasing array of strategies to access private credit are fueling market growth. Zawadzki highlighted private investment-grade strategies, including asset-backed finance and infrastructure credit, as particularly compelling in the current market. The asset-based finance market alone is estimated to be between $5 trillion and $10 trillion.

Blackstone's Rob Camacho, co-head of asset-based finance, emphasized that private credit lenders are just beginning to tap into consumer and asset-based finance. Large-scale players needing asset-based debt are likely to prefer working with single managers who can commit to these transactions. Camacho pointed out that private credit’s share of the asset-based finance market is still small, indicating significant growth potential.

Currently, most borrowers in the private credit market are small- or mid-sized firms with minimal corporate debt. Blackstone finances various sectors, including consumer loans, aircraft loans, fund finance, renewables, and critical infrastructure. Camacho believes that as interest rates remain steady, more assets will become financeable, and larger, investment-grade companies will increasingly turn to asset-based debt.

Morgan Stanley projects the private credit sector could grow to $2.8 trillion by 2028, citing the advantages of tailored credit solutions.

 The majority of private credit lending involves floating-rate investments, which adjust with interest rates, offering real-time mitigation against rate changes.

Private credit has historically outperformed other fixed-income segments, offering higher returns and lower volatility than leveraged loans or high-yield bonds, according to Morgan Stanley. Alliance Bernstein notes that the growth in private markets is set to continue, driven by structural factors like ongoing banking regulations and the efficiency and certainty of execution provided by private lenders.

https://www.morganstanley.com/ideas/private-credit-outlook-considerations

Conclusion – Fresh Opportunities for Investors

At The Family Office, we are confident in private credit’s expanding role in financing the real economy. This growth presents investors with unique opportunities to diversify asset allocations and enhance portfolio performance.

Data represents the period from Q1’08 to Q3’23. Calculated as annualized average returns divided by volatility. Volatility is measured using standard deviation.

“Direct Lending” is represented by the Cliffwater Direct Lending Index (CDLI) and is calculated from quarterly data, which has been annualized. “High Yield Bonds” is represented by the ICE BofA High Yield Index calculated from annualized monthly data, except for the loss experience chart, where this is sourced from Moody’s. “Leveraged Loans” is represented by the Morningstar LSTA US Leveraged Loan Index calculated from annualized monthly data, except for the loss experience chart, where this is sourced from Moody’s. The index performance is provided for illustrative purposes only and is not meant to depict the performance of a specific investment.

Steady Growth Anticipated for Private Credit Market

The Importance of Financial Independence for Women

Financial independence is a cornerstone of personal empowerment, especially for women, who face unique financial challenges that require tailored wealth management solutions. Achieving financial independence not only ensures security but also opens avenues for personal growth, philanthropy, and legacy building.

Women face various unique financial challenges in their quest for economic independence. These include dealing with the persistent wage gap between genders, managing breaks in careers for caregiving duties, and planning for longer lifespans.

1. Gender Pay Gap: Despite progress, the gender pay gap persists, leading to significant disparities in earnings and savings over a lifetime. According to the World Economic Forum, it will take 131 years to close the global gender pay gap at the current rate of progress.

 This gap can impact women’s ability to accumulate wealth and secure their financial future.

2. Career Breaks: A 2024 report by LinkedIn found that nearly 43% more women have a career break than men.

 Many of these women take breaks for caregiving responsibilities, whether for children or elderly family members. These interruptions can affect career progression and retirement savings.

3. Longer Life Expectancy: Women generally live longer than men, necessitating a more substantial retirement fund. On average, women live five years longer than men, according to the World Health Organization.

 This increased lifespan requires careful financial planning to ensure a comfortable and secure retirement.

Addressing the unique financial challenges women face requires a personalized approach. Tailored wealth management solutions are essential for meeting women’s specific financial needs and helping them achieve financial independence. Effective investment strategies, including opportunities in private markets, play a key role in growing wealth and supporting long-term goals such as retirement and legacy planning. Expert financial advisors enhance this process by customizing portfolios based on individual goals, risk appetite, and time horizon.

Key components of a successful strategy usually include:

At The Family Office, we are dedicated to empowering women in investing, aligning with the goals of Saudi Vision 2030. We provide personalized wealth management solutions that enable women to seize control of their financial futures. By understanding and addressing their unique challenges, we offer strategies crafted to foster financial independence.

Schedule a call with our financial advisors today to discover how we can help you navigate your financial journey.

Why Financial Independence is Crucial for Women

Join us to hear Jim O’Neill’s view on the future path of the world economy, BRIC countries and portfolio allocation.

Jim O'Neill | The Future World Economy

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