Conning ConnText Podcast: Central Banks’ Inflation Fight Making Progress, but Higher Rates May Lead to Economic Slowdown Later in 2023
July 31, 2023
U.S. States Vary in Financial Readiness
HARTFORD, CT – July 31, 2023 —Leading global investment management firm Conning has posted its latest Conning ConnText quarterly podcast, which discusses the concerns of how central bank inflation-fighting polices may trigger an economic slowdown by the end of the year.
Rich Sega, Conning’s Global Chief Investment Strategist and host of the podcast, said that the U.S. Federal Reserve’s program of raising interest rates to fight inflation – including another 25-basis-point hike announced July 26 – may be bearing fruit. But is the Fed done?
“This is a key question for investors in all segments of the capital markets as the risk of recession versus continuing the expansion hangs in the balance,” said Sega. “The data is mixed, the street is unsure, the FOMC members are divided, and the investment community is apprehensive.” He thinks the Fed, as well as other central banks, will continue to tighten for a period, likely leading to a slowdown and possible mild recession late this year and into early 2024.
Karel Citroen, head of Conning’s municipal credit research, discussed how an economic slowdown could affect state credit quality.
“Reserve levels for the states have improved significantly since the Great Financial Crisis, with many states having their rainy-day funds reach all-time highs,” Citroen said. However, there are “increasing signs that the extraordinary tax-revenue growth of the past few years will moderate. With high inflation keeping expenses up, we think this will pressure state budgets.”
He added that less fiscal aid, weaker stock and labor markets, and the fact that nearly half of U.S. states have made tax cuts are factors that will likely challenge state finances should recession strike.
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Conning (www.conning.com) is a leading investment management firm with over $205 billion in global assets under management as of June 30, 2023.* With a long history of serving the insurance industry, Conning supports institutional investors, including insurers and pension plans, with investment solutions, risk modeling software, and industry research. Founded in 1912, Conning has investment centers in Asia, Europe and North America.
* As of June 30, 2023, represents the combined global assets under management for the affiliated firms under Conning Holdings Limited (CHL) and Cathay Securities Investment Trust Co., Ltd. (SITE). SITE is a separate entity under Cathay Financial Holdings Co., Ltd which is the ultimate controlling parent of all Conning entities. The CHL CEO sits on the Board of SITE and helps oversee the business.
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