- Fixed Income Portfolio Manager
Skip to main content
- Funds
- Insights
- Capabilities
- About Us
- My Account
United States, Institutional
Changechevron_rightThe views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
While acknowledging further progress on economic data, the July Federal Open Market Committee (FOMC) statement gave little indication on the timing of the first rate cut. During his post-meeting press conference, Fed Chair Jerome Powell provided some fodder for the doves hoping for explicit guidance that cuts (consistent with current market pricing) would commence in September, noting that conditions could be in place to warrant a cut “as soon as the next meeting.” Though the Fed maintains an easing bias, the Committee appears content to wait for more inflation and labor data to boost its confidence in its benign outlook before cutting policy rates.
The Fed hinted that it may be placing more emphasis on the recent weakness in the labor market by replacing its language in the statement that it “remains highly attentive to inflation risks” to reinforce that it “is attentive to the risks to both sides of its dual mandate.” The labor market has shown some signs of softening in recent months as wage pressures have moderated and the unemployment rate has ticked above the Fed’s forecast for the end of this year. This has been fueled in part by an immigration-driven increase in labor force participation. However, the Fed’s preferred inflation gauge — core personal consumption expenditures (PCE) — stalled at 2.6% year over year in June. While some base effects (low comparisons from last year) will likely put upward pressure on inflation in the coming months, I think this will be offset by further weakening in the shelter component, the decline of which accelerated last month.
The Fed may feel some pressure to kick-start its easing campaign sooner given that it lags many of its developed market peers. The European Central Bank, Swiss National Bank, and Bank of Canada have all cut policy rates this year, with the Bank of England expected to follow suit on August 1. If it keeps interest-rate differentials wide for too long, the Fed risks persistent US-dollar strength that makes US exports unattractive, hurting growth prospects. Though currency dynamics are not part of the Fed’s mandate, it remains attuned to these risks, as well as the adverse impact on financial conditions of keeping policy rates higher for longer.
Powell reiterated during his press conference that monetary policy remains independent of political developments, but inflation outcomes are likely to be quite different, depending on who wins the US presidential election. A Harris victory would likely ensure a great deal of policy continuity carries over from the Biden administration. On the other hand, inflation is likely to be significantly higher under Trump due to the accompanying impacts of his proposed trade and immigration policies. In the run up to November’s election, I expect to see additional volatility in markets as investors calibrate asset values based on the potential impacts of trade, tariffs, taxes, and regulatory changes as the polls oscillate.
Expert
Fed delivers rate cut, but hawkish 2025 guidance sends yields up
Continue readingWeekly Market Update
Continue readingBy
Bond Market Outlook
Continue readingMultiple authors
Going their separate ways: Capitalizing on bond divergence
Continue readingMultiple authors
Securitized credit: Opportunity amid tight corporate spreads?
Continue readingURL References
Related Insights
Stay up to date with the latest market insights and our point of view.
You've been subscribed
Thank you for subscribing. You can manage your subscription using the links provided in any of our subscription emails.
Fed delivers rate cut, but hawkish 2025 guidance sends yields up
Fixed Income Analyst Caroline Casavant examines the outcome of the December 18 Federal Open Market Committee meeting and the implications for rates, inflation, and real growth.
Weekly Market Update
What do you need to know about the markets this week? Tune in to Paul Skinner's weekly market update for the lowdown on where the markets are and what investors should keep their eye on this week.
By
Bond Market Outlook
Our fixed income experts assess how to capitalize on market volatility with a flexible and dynamic approach that leverages diverse high-yielding opportunities and manages risks carefully.
Multiple authors
Going their separate ways: Capitalizing on bond divergence
Our fixed income experts discuss how to position portfolios for a world of uncertainty and divergence, exploring key themes and evolving bond opportunities for 2025.
Multiple authors
Securitized credit: Opportunity amid tight corporate spreads?
Portfolio Managers Rob Burn and Cory Perry discuss why they believe securitized credit has an attractive role to play in today’s tight-spread environment and highlight potential areas of opportunity in 2025.
Scaling opportunities in a new economic era
Explore our latest views on risks and opportunities across the global capital markets.
The credit cycle has been extended — but what’s next?
Credit experts Derek Hynes, Joe Ramos and Will Prentis discuss why they believe the current credit cycle still has legs and explore likely implications for credit portfolios in 2025.
Multiple authors
High-yield credit investing: it’s a marathon, not a sprint
Fixed Income Portfolio Manager Konstantin Leidman explains his focus on the high-quality companies likely to outperform over the long term and why he is wary of the hype surrounding potentially bubble-inducing developments like generative AI.
What's current in credit: November 2024
Connor Fitzgerald explores the impact of President Trump’s US election victory on credit markets. Where are the opportunities and risks for credit investors now?
Navigating uncertain policy shifts
Macro Strategist Juhi Dhawan explains why investors should prepare for heightened volatility in 2025, due to significant policy changes under President-elect Trump that will impact inflation, trade, and economic growth.
Listening to voters’ economic concerns should mean less fiscal spending
Fixed Income Portfolio Manager Brij Khurana explains the likely economic and market impacts of Trump administration policies, including potential winners and losers from drastic fiscal spending cuts.
By
URL References
Related Insights
© Copyright 2024 Wellington Management Company LLP. All rights reserved. WELLINGTON MANAGEMENT ® is a registered service mark of Wellington Group Holdings LLP. For institutional or professional investors only.