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Factors to Consider for 6-12 Months For the Quarter Ended March 31, 2022 Market Update For the Quarter Ended December 31, 2024 MarketUpdate Current outlook Outlook one quarter ago Negative Slightly Negative Neutral Slightly Positive Positive Statements and opinions expressed about the next 6-12 months were developed based on our independent research with information obtained from Bloomberg and FactSet. The views expressed within this material constitute the perspective and judgment of PFM Asset Management at the time of distribution (12/31/2024) and are subject to change. Information is obtained from sources generally believed to be reliable and available to the public; however, PFM Asset Management cannot guarantee its accuracy, completeness, or suitability. Monetary Policy (Global): •The Fed continued its easing cycle with a total of 100 basis points (bps) of rate cuts in 2024. The FOMC’s December median “dot plot” projection suggests another 50 bps in cuts by the end of 2025, which is significantly less than previously implied, in large part due to uncertainty surrounding implications of potential fiscal policy changes. •While the Fed and other major central banks (excluding the Bank of Japan) continue to ease, expectations are for policy rates to settle higher in the longer term given the higher inflation outlook. Economic Growth (Global): •U.S. economic growth remains strong on consumer spending which remains quite resilient. •Fiscal policies discussed on the campaign trial are expected to boost growth, however actual policy implementation and timing are uncertain and subject to change. •Economic growth outside the U.S. remains modest. Tariffs pose some risks with trading partners. •Declines in foreign direct investment and weak domestic demand continue to impact China. Inflation (U.S.): •While inflation has fallen since its peak in 2022, progress has stalled in the past few months. •The Fed has acknowledged higher inflation expectations going into 2025. Further rate cuts will depend on inflation moving closer to its 2% target. •Proposed fiscal policies may put pressure on wages and goods costs. Some policymakers have already incorporated these impacts into their outlooks. Financial Conditions (U.S.): •Market metrics such as narrow corporate yield spreads and strong equity returns continue to point to the stability of financial conditions. The potential for decreased regulation under the incoming administration has buoyed economic confidence. •We remain attentive to further cooling in the labor markets and fiscal policy considerations as these will play a large role in the evolution of future conditions. While our base case is not for a dramatic shift in conditions, the potential impact of future policies warrants attention. Consumer Spending (U.S.): •Broad consumer metrics show spending fueled by the stability of the labor market continuing to support economic strength. A growing divergence among consumers exists as lower-income cohorts continue to feel more strain due to the higher overall level of prices. •An unexpected material deterioration of labor market conditions is the biggest risk factor to consumer spending. Other headwinds may include slower real wage growth, which could reduce purchasing power, and higher interest rates persisting. Labor Markets: •The labor market remains well-positioned and in balance despite intra-quarter data volatility caused by weather events and strikes which have now been resolved. •Layoffs remain near historically low levels; however, the pace of hiring has slowed considerably. The Fed has acknowledged labor market conditions have loosened, and a further cooling of labor conditions is not necessary to achieve its dual mandate of maximum employment and stable prices. PFM Asset Management | pfmam.com CITY OF REDWOOD CITY 24 6.A. - Page 30 of 60 35