Will the Fed Cut Rates to Rescue Financial Markets?
No, we do not think the Federal Reserve will cut rates in the near term to rescue financial markets. However, if tariffs begin to significantly impact the real economy, the Fed will eventually act.
Authored by: TJ Scavone
2025 Outlook: Interest Rates
We expect most major central banks to continue cutting policy rates, which should allow bonds to outperform cash. With breakeven inflation rates likely to be range bound, returns of inflation-linked and nominal bonds should be similar.
VantagePoint: Deconstructing US Debt Dynamics
Despite alarming headlines about rising US debt, investors should resist making drastic portfolio changes. While an immediate crisis appears unlikely, the risk could increase if the United States fails to manage its debt effectively. Therefore, reviewing potential portfolio adjustments at the margin that might enhance future returns is prudent.
The Fed Cuts Aggressively, but Remains Cautious About Future Cuts
The Federal Reserve has reduced the target range for the federal funds rate by 50 basis points (bps) to 4.75%–5.00%, the first reduction in over four years.
US Election Anxiety: Keeping Calm Amid Political Uncertainty
Markets have been jittery as the US presidential election approaches. The macro backdrop is shifting, with slowing economic growth and ebbing inflation meaning a cycle of monetary easing beckons. At the same time, elevated valuations for a variety of assets are causing investors to reconsider narratives around themes, such as AI investment, and consider asset allocation tweaks. Investors should resist positioning portfolios for any one political outcome and remember that increased market volatility around elections is common. In the following report, we discuss our views on five common election-related narratives in the marketplace today.
Are Inflation-Linked Bonds Attractive?
Yes. Inflation-linked bonds, particularly US Treasury Inflation-Protected Securities (TIPS), have become an attractive investment option, given elevated real yields and their unique diversifying characteristics.
Will There be a Second Wave of Inflation?
No, we expect Consumer Price Index (CPI) inflation will continue to moderate toward central bank target levels in 2024.
2024 Outlook: Interest Rates
We expect that most major central banks will cut policy rates modestly due to our view that inflation rates will continue to decline. The modest cuts will shift policy rates from restrictive levels closer to neutral levels, which are neither restrictive nor accommodative. Given this view and our view that economic activity will weaken, we see opportunity in US long Treasury securities.
Should Taxable Investors Still Rely on Municipal Bonds to Boost After-Tax Returns?
Yes. Municipal (muni) bonds have recently outperformed taxable equivalents before taxes and the tax advantage of high-quality munis has grown as interest rates have gone up. We recommend a neutral allocation to high-quality munis in taxable portfolios.
Does Fitch’s Recent Ratings Downgrade of US Sovereign Debt Change Our View on Treasuries?
No, we continue to believe investors should hold US Treasuries in line with policy allocations. While the recent decision by Fitch Ratings to downgrade the sovereign credit rating of the United States added upward pressure on Treasury yields, we do not expect it will have a lasting impact.