Fed Serving Up What Market is Craving

Co-Head of Global Bonds Nick Maroutsos and Portfolio Manager Jason England explain why the Federal Reserve was correct in not cutting rates Wednesday and which factors may justify a move lower in July.

Key Takeaways

  • The Fed’s removal of its “patient” language gives the central bank room to lower interest rates at its July meeting should the domestic and global economy exhibit signs of softening.
  • Although the U.S. economy appears stable, the risks posed by rising trade barriers, the absence of inflation and evidence that the Fed is willing to step in at any hint of a wobbling equity market (recognizing this week’s record close) all increase the plausibility of a July rate cut.
  • Lower policy rates will likely steepen the yield curve on the front end, punishing investors who seek income while keeping duration low.