Conundrum

That's what the Fed is dealing with. Data is showing the economy is slowing...? as evidenced by the May 30th release of +1.3% GDP growth, which is a -0.3% decline from the previous quarter. We now have GDP at run rates in the ~1% range while measures of inflation in the form of CPI and PCE Deflator remain at 3.2% and 2.8%, respectively – levels above the Fed’s targets. One example of a major leading indicator is ISM Manufacturing.? This metric has remained under 50 indicating contraction for the last 18 months.? With the May jobs report set for this Friday morning, all eyes will be on these two widely followed indicators of the economy’s trajectory.?In addition, there are signs of iron ore demand waning once again.

Today the ECB cut rates by 25bps following Switzerland and Canada BUT raised their inflation target to 2%. Aligning their target with the Fed's for whatever that’s worth. We have said for some time that 2% seems a made-up number but that’s where it's set. We believe the Fed will cut 25 bps in either June (14th) or July (31) to STAY ahead of the economic slowdown. We do not believe that a 25bps cut will damage the Fed's fight on inflation but will benefit consumers and borrowers broadly. Mortgage debt, housing market, commercial real estate, credit card debt, auto loans, margin debt etc. would all benefit from a lowering of rates. It's also our contention that it would make sense for the Fed to lower rates during the summer, so they are not potentially forced to do so close to the election if the economy continues to falter.? A move so close to the election could potentially risk their apolitical mandate.? The credit market will continue to benefit from "Higher for Longer", interest rates will drive a sharp increase in dispersion among companies and industries, driving an increase in the pace of credit ratings upgrades and downgrades. An environment of increasing differentiation between the "haves" and "have nots", higher absolute yields, steeper credit curves, and higher differentiation are significant tailwinds for our strategy. ?The case for actively managed alternative credit hasn't been this strong in over a decade.