No. We continue to think investors should tightly manage risk by keeping equity allocations and bond duration in line with broad policy targets and resist the temptation to time the market.
Yes. Markets will be less vulnerable to rising rate risk next year, as the aggressive tightening that has weighed on markets for much of 2022 has moderated more recently since inflation has slowed.
We expect interest rates will increase in many developed markets, as implied by market pricing. But we think the Fed will hold rates in restrictive territory for longer than expected. We don’t believe any increases will prompt another European sovereign debt crisis.
With inflation running at multi-decade highs, monetary policymakers are united in one of the most aggressive tightening campaigns in decades. Most central banks have already significantly increased policy rates this year, and some are unwinding their massive balance sheets, also known as quantitative tightening (QT). In this paper, we review what is known about the current state of central banks’ balance sheets and their operations, discuss some known uncertainties of QT’s impact on financial markets, and consider QT in the context of the current market environment.
The Federal Reserve announced its third consecutive interest rate increase of 75 basis points (bps) today, bringing the Fed funds target range to 3.00%–3.25%.
Yes. Munis still have value on an after-tax basis over the long term, and their near-term outlook has improved following the rise in yields and spreads during this year’s sell-off.
Yesterday, the Federal Reserve announced it would raise the target range for the Fed funds rate 50 basis points (bps) to 0.75%–1.00%. It also formalized plans to reduce its $9 trillion balance sheet starting June 1, with an initial monthly cap of $47.5 billion, rising to $95 billion per month on September 1.
No, we do not recommend that investors go long duration in fixed income portfolios. The uncertain inflation outlook and potential for more aggressive policy tightening suggest yields could rise further.
Government bonds have sold off to start the year as central banks tighten policy in response to inflation pressures. The rise in yields this year may meet some resistance in the near-term, but likely has more room to run given the economic backdrop and policy trajectory. Of course, the war in Ukraine and its impact on the economy will be a key driver of rates for the duration of the conflict.
US consumer prices increased 7.0% year-over-year in December, which is the fastest annual rate since 1982, according to government data released today. We expect US inflation will moderate in the coming months, in line with consensus forecasts, but we anticipate it will settle in a higher range than the previous cycle.