Will the Federal Reserve’s Plan to Keep Interest Rates High Impact Stocks and Bonds?

Will the Federal Reserve’s Plan to Keep Interest Rates High Impact Stocks and Bonds?

The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., U.S., June 14, 2022. REUTERS/Sarah Silbiger

[ニューヨーク 21日 ロイター] – The Federal Reserve’s plan to keep interest rates high for an extended period of time could weigh on stocks and bonds in the coming months. But some investors are skeptical that the Fed will maintain this policy.

As expected, the Federal Reserve left interest rates unchanged at the Federal Open Market Committee (FOMC) meeting, which lasted until the 20th. However, he strengthened his hawkish stance, expecting further interest rate hikes by the end of the year and saying monetary policy would remain much tighter than previously expected through 2024.See more

If interest rates remain high for an extended period of time, unfavorable developments are expected for stocks and bonds. U.S. Treasury yields are already at their highest levels since 2007 and could rise further if interest rates remain high. The S&P 500 Index (.SPX) is up 15% since the beginning of the year, but has stagnated from its late-July highs as yields accelerate.

“There is a wide range of possible outcomes for when rates will be cut, and we may see more volatility towards the end of the year,” said Josh Jamner, investment strategy analyst at ClearBridge Investments. Indicated.

But at least some in the market appear to have doubts about the Fed’s ability to keep interest rates high. As of Wednesday night, the U.S. short-term interest rate futures market was pricing in the Federal Reserve cutting interest rates by nearly 60 basis points (bp) next year to about 4.8%. Fed officials expect 5.1%.

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“It seems like the Fed is trying to send the most hawkish signal possible. The question is whether the market will listen to it,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities USA. “I don’t think the Fed’s dot chart forecast will hold if the economy starts to slow,” he said.


The Federal Reserve has raised interest rates by a total of 525 basis points since March 2022. The key question for many investors is how much this has penetrated the economy and whether growth can be sustained if interest rates remain at current levels for most of 2024.

Fed Chairman Jerome Powell said that if the economy is “robust,” the Fed can continue to put pressure on financial conditions with a much lower hit to growth and the labor market than previous inflation-fighting measures.

But short-term risks have emerged that cloud the outlook for a soft economic landing, including rising energy prices, a strike by the U.S. autoworkers union, a government shutdown and the end of student loan forgiveness.

“Inflation is moving in the right direction, but there are a lot of headwinds (to growth),” said David Norris, head of U.S. credit at TwentyFour Asset Management.

John Maziire, senior portfolio manager and head of U.S. Treasuries at Vanguard Fixed Income Group, said bond yields are near their peak and look “very attractive.”

“There’s not going to be much room for yields to rise, so long-term investors should use this to add duration risk at these levels and add more risk if there’s a pullback.”

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Betting on peak interest rates has backfired for investors multiple times over the past year. Economic growth has been stronger than expected, forcing the government to reconsider its forecast that the economy will enter a recession in 2023, and forcing the Federal Reserve to postpone the timing of its interest rate cuts.

However, Norris said, if interest rates remain high, the soft-landing scenario could be in jeopardy. “If monetary policy remains as restrictive as it has been in the past, a hard landing is more likely,” he said.

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Our Standards: The Thomson Reuters Trust Principles.

Davide Barbuscia covers macro investment and trading out of New York, with a focus on fixed income markets. Previously based in Dubai, where he was Reuters Chief Economics Correspondent for the Gulf region, he has written on a broad range of topics including Saudi Arabia’s efforts to diversify away from oil, Lebanon’s financial crisis, as well as scoops on corporate and sovereign debt deals and restructuring situations. Before joining Reuters in 2016 he worked as a journalist at Debtwire in London and had a stint in Johannesburg.

2023-09-21 07:04:00
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