For the Fed and the Economy, So Far, So Good
By: Thomas Richmond, Co-Head of Taxable SMA Strategies, Senior Portfolio Manager
In the quarter just ended, with few market-moving headlines or geopolitical dustups to muddy the market waters, bond investors were left to contemplate macroeconomic data and central bank monetary policy actions and rhetoric when deciding how to position themselves in the various market sectors. Once it becomes clear that, for the time being, the bank failures and stresses seen late in the first quarter had been possible anomalies, the markets, and especially the US Treasury complex, resumed the process to aligning themselves with what the Federal Reserve was telling them was in the cards: continued policy rate hikes to further combat falling but sticky core measures of inflation. Interest rates rose across the maturity spectrum during the quarter, and noticeably more in the short end of the curve where Fed policy rates play a much more important role; this, in turn, pushed market-derived estimates of the eventual peak in the Fed Funds rate to new highs, near 5.5%. Moreover, the market’s expectation for the length of time that will pass before the Fed begins to cut rates extended significantly, into the early parts of 2024
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