Rising unemployment rate suggests the Fed will cut rates in December, says iCapital's Sonali Basak

Federal Reserve Insights - The Federal Reserve is considering a hawkish cut in December, with little change in economic conditions since the last meeting [2] - Current projections indicate core PCE at approximately 3.1% for the year, while unemployment is approaching 4.5%, suggesting potential for further risk management cuts [3] - The impact of a 25 basis point cut on the S&P 500 has been noted, raising questions about the effectiveness of such cuts moving forward [4] Private Credit Market Analysis - The focus is shifting towards private credit, particularly concerning vintage risk from deals made in 2021 and 2022, which may face challenges due to changing rate environments [6] - There is a concern regarding liquidity in private credit markets, as many investors assumed these structures were liquid, which they were not [7] - Defaults are expected at the margins, particularly affecting lower-income consumers, while overall credit quality remains stable [8] Market Conditions and Credit Quality - Recent data indicates high insurance costs for autos and homes, which could signal areas for credit quality deterioration [9] - Default rates in the market remain relatively low, between 2% and 3.5%, with an emphasis on the importance of more frequent monthly marks for assessing credit quality [11] - Aggregate credit quality has held up, but questions around marks and liquidity are becoming increasingly significant [12]