ST. LOUIS (KMOX) - We are almost at the mid-year mark, is the economy where we thought it would be?
"Economically, I would say this is a pretty good set up," said Lauren Sanfilippo, director and senior investment strategy analyst with Bank of America. "We have inflation moderating and it hasn't been linear, down to the fed's 2% target, but the markets increasing, we try to anticipate fed cuts for this year, at one point expecting six percent, but now down to maybe one or two percent. So I would say generally we are set up for that lower cost of capital and that's good news."
Sanfilippo says some things Bank of America is monitoring is obviously inflation, but more specifically how companies are mitigating those inflation risks.
"Obviously, we're off of a peak of inflation from last year. But I do think
we could meander somewhere in this 2 to 3 percent range, but this is that
higher for longer set up that we talked about at the end of last year," Sanfilippo explains. "Economists thought it was possible we're in this higher interest rate environment, meaning structurally, we moved out of a time when interest rates were zero, right? That was happening pre-pandemic. So when you're a business, you need to contend in this environment of inflation off of its peak. But it certainly depends on your industry."
Another thing Sanfilippo says the banks are also monitoring is the impact the 2024 political cycle could have on businesses.
"I do think my concern is and I hear it in client meetings too. It's this hesitancy, this uncertainty that sort of is the overhang for this year," said Sanfilippo. "The consumer could become more hesitant to pull back on spending or investing and that feeds into a worse than anticipated consumer cycle. And cyclically speaking, that's not something we're pricing in right now. Aggregate spending has still been healthy at on that aggregate level. But I do think it's a little bit more of a bifurcated story and that's been more evident more recently."