For financial professionals in Uruguay

US Fed’s high wire act


Apr 29, 2021
1 minute read

Global Bonds Portfolio Manager Bethany Payne provides a brief view on the outcome of the latest US Federal Reserve meeting in April 2021, where no changes were made to monetary policy.

 

Rates remain unchanged for now and, despite improving economic data, taper talk remained off the table at the US Federal Reserve (Fed) meeting on Wednesday 28 April. As vaccination rates accelerate, employment strengthens and expansive fiscal policy adds further support to household and business incomes, investors are now looking for signs of whether the central bank’s safety net could be withdrawn sooner than expected.

US government borrowing has ballooned during the pandemic, underpinned by the Fed’s bond buying programme. According to our Sovereign Debt Index, by the end of 2020, US government debt stood at $19.6 trillion — around $60,000 per person. The cost of servicing all this debt is also higher in the US than the rest of the world.

New borrowing is cheaper. Roughly half of today’s outstanding total is due to be refinanced within the next four years (and can be replaced at more favourable rates); however, any hint that the Fed’s bond purchasing programme is about to slow has the potential to create a wave of volatility in fixed income markets. This is the tightrope the Fed will need to continue to walk over in the coming months.

Equally, with such elevated debt levels and relatively short maturities, the US is more vulnerable to a future increase in rates than many other countries — an issue which could move to the fore if the growth recovery remains strong and inflation moves towards or above the 2% target, although any uptick in inflation should be transitory.

 

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

 

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

The information in this article does not qualify as an investment recommendation.

 

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