- Fixed Income Portfolio Manager
Skip to main content
- Insights
- Capabilities
- Funds
- Sustainability
- About Us
- My Account
Spain, 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.
The May Federal Open Market Committee (FOMC) statement noted that in recent months inflation has failed to show further progress toward the Fed’s 2% objective. As a result, the clear bias to ease rates has disappeared. Chair Powell was quick to note that he thought it was unlikely that the next policy move would be a hike, but the market could be waiting for much longer than previously expected for the FOMC to begin cutting rates. Powell did highlight that the Fed is particularly attuned to the state of the labor market and would react if it saw any outsized weakness. From my perspective, this puts more asymmetry into prospective price action if the April labor report is meaningfully misaligned with expectations.
Inflation data, which had precipitously declined over the second half of 2023, has since proven much stickier, with the Fed’s preferred core personal consumption expenditure leveling at 2.8% year over year as of the March reading. The labor market has also demonstrated resilience, though some of the leading indicators I monitor suggest a turn may be imminent. In addition, the quits rate — an important leading indicator for wage growth — has declined to its lowest level this economic cycle, which suggests workers have less confidence in finding new jobs. This typically leads wages and service price inflation lower. Still, broader economic data have proved stronger than forecasted; investors will need patience in awaiting the next easing cycle.
The Fed also announced it would slow the pace of its balance sheet reduction by redeeming no more than US$25 billion in Treasury securities per month, down from up to US$60 billion per month. This Fed statement coincided with the latest quarterly refunding announcement from the US Department of the Treasury, released earlier in the same day, which announced that it would begin buying back up to US$30 billion in Treasury securities in the secondary market. While both events were scheduled months in advance and policies are conducted independently, I do find it interesting the Treasury market’s two biggest players announced significant policy changes on the same day that should both benefit the Treasury market in the near term.
Although the Fed will not update its summary of economic projections again until the June FOMC meeting, it seems clear that its bias for easing policy rates has moderated. I still think there is a good chance the Fed will be able to deliver rate cuts this year. Policy rates have been restrictive for quite some time and the lagged impacts are likely still working their way through the economy. Of course a potential “Trump card” played in November, with the accompanying inflationary impacts of expected more restrictive trade and immigration policies, could challenge that view.
Expert
Bonds in brief: making sense of the macro — April issue
Continue readingThe Fed’s lessons learned from its COVID response
Continue readingBy
Bonds in brief: making sense of the macro — March issue
Continue readingFOMC: Stable policy amid market volatility
Continue readingIs the US economy really that different since COVID?
Continue readingBy
Income: the hard worker in your portfolio deserves more credit
Continue readingMultiple authors
URL 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.
Bonds in brief: making sense of the macro — April issue
What's driving global bond markets and what are the investment implications? Read the April issue of "Bonds in brief" for Wellington Investment Director Marco Giordano's monthly assessment of risks and opportunities within bond markets.
The Fed’s lessons learned from its COVID response
Fixed Income Portfolio Manager Brij Khurana breaks down the central bank's policy decisions during the pandemic and explains how they continue to affect financial markets.
By
Japan equity: Reason to believe
Our expert argues that corporate governance reform and the Japanese economy's escape from persistent deflation have laid the groundwork for a sustainable equity rally.
Bonds in brief: making sense of the macro — March issue
What's driving global bond markets and what are the investment implications? Read the latest "Bonds in brief" for Wellington Investment Director Marco Giordano's monthly assessment of risks and opportunities within bond markets.
FOMC: Stable policy amid market volatility
The Fed is holding steady amid market turmoil. See our quick notes on the FOMC's March policy statement, forecasts, and the Fed chair's press conference.
Is the US economy really that different since COVID?
US economists have been touting the resilience of the post-COVID economic rebound. Brij Khurana dissects several key economic indicators to see what's really changed since 2019.
By
Income: the hard worker in your portfolio deserves more credit
Income from cash is good but income from bonds is better. In a less certain macro environment, Alex King, Supriya Menon and John Mullins think the case for income only gets stronger. How can investors make the most of opportunities?
Multiple authors
Bonds in brief: making sense of the macro - February issue
What's driving global bond markets and what are the investment implications? Read February's "Bonds in brief" for Wellington Investment Director Marco Giordano's monthly assessment.
Bonds in brief: making sense of the macro - January issue
What's driving global bond markets and what are the investment implications? Read January's "Bonds in brief" for Wellington Investment Director Marco Giordano's monthly assessment.
The shifting liquidity landscape: What’s at stake?
The beginning of the end could be in sight for the Federal Reserve’s quantitative tightening (QT) program. US Macro Strategist Juhi Dhawan considers the Fed's next steps and what they could mean for banks, liquidity, and markets broadly.
Bonds in brief: making sense of the macro - December issue
What's driving global bond markets and what are the investment implications? Read "Bonds in brief" for Wellington Investment Director Marco Giordano's monthly assessment.
URL References
Related Insights
© Copyright 2024 Wellington Management Europe GmbH. All rights reserved.
WELLINGTON MANAGEMENT FUNDS ® is a registered service mark of Wellington Group Holdings LLP.
Wellington Management Europe GmbH. Registered office: Bockenheimer Landstraße 43-47, 60325 Frankfurt am Main, Germany. T: +49-69-677761-500. VAT-number DE 326304943 (Umsatzsteuer-Identifikationsnummer) Commercial Register of the local court Frankfurt am Main (Handelsregister des Amtsgericht Frankfurt am Main), HRB 115460 .
Wellington Management Europe GmbH, is authorised and regulated by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht)
For professional investors and intermediaries only. This content is not suitable for a retail audience.
we’d love your feedback!
Help us improve our website. For every short survey taken, we give 2 to the Wellington Management UK Foundation to support educational charities helping economically disadvantaged children in EMEA.
Japan equity: Reason to believe
Continue readingBy
Toshiki Izumi, CFA, CMA