Company: NLY-PF
Filing Date: 2025-02-13
Form Type: 10-K
Source: 0001628280-25-005451
Chunk: 10

Company: ANNALY CAPITAL MANAGEMENT INC
Filing Date: 2025-02-13
Form: 10-K
Item: Item 7
Chunk 10
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 2024, marking a second consecutive year of strong U.S. economic growth despite continued elevated interest rates. The strength of the U.S. economy was primarily driven by consumption, as individuals benefitted from robust wage growth and a moderation of inflation pressures. Government spending also supported economic growth, while investment activity contributed somewhat less than in 2023. Separately, the U.S. economy broadly appears to have benefitted from recent strong immigration flows, which helped balance labor market supply and demand, and improved productivity gains. 

Financial markets observed a constructive 2024, with equities recording strong returns given the healthy economic picture, best seen in the 25.0% total return for the S&P 500 Index. Interest rates, however, remained volatile throughout the year, though were generally more rangebound than in 2023. Ten-year Treasury yields traded in a range between 3.6% and 4.7%, generally narrower than in 2023, when the range was 3.3% to 5.0%. Nonetheless, interest rates generally remained elevated relative to the period between the 2008 financial crisis and the 2020 pandemic, which has led to increased speculation that the lower interest rates in that period were more of an outlier than a new normal. For now, the U.S. economy remains strong, which in turn suggests healthy economic growth can occur even at these higher interest rate levels. 

The Federal Reserve (“the Fed”) lowered the Federal Funds Target Rate (“Fed Funds Rate”) in the second half of 2024. As inflation rates fell from their peak in the summer of 2022 and hiring slowed over the summer months, the risk that a Fed Funds Rate at a peak of 5.25-5.50% would unduly constrain economic growth and the labor market rose. Consequently, the Fed lowered the Fed Funds Rate by 1% over the course of three meetings between September and December, even though inflation remained above 2% annual rates. Given continued strength in both inflation and economic activity, Fed officials have signaled a more gradual approach going forward, waiting for further inflation progress to lower the rate further. Regarding their balance sheet policy, the Fed slowed the decline in their securities portfolio mid-year by reducing the cap on Treasury securities runoff from $60 billion per month to $25 billion. Combined with the decline in their mortgage-backed securities portfolio, the Fed’s security portfolio declined $668 billion in 2024 and continues to decline at a $60 billion per month pace.

Of note