Federal Reserve: Perhaps a Sign
Investors have been waiting for a sign that interest rates were peaking and for clues that the Federal Reserve might be pausing its rate hike activity. Comments by Federal Reserve officials may suggest we are at that point now.
As we have said in the past, we believe inflation is beginning to slow and we are at the end of the tightening cycle. It’s lasted longer than we expected but we still believe the end is near for rate hikes.
A recent article on Reuters outlined comments made by a Dallas Fed official regarding Fed policy. Excerpts are provided below.
“The recent rise in long-term U.S. Treasury yields, and tighter financial conditions more generally, could mean less need for the Federal Reserve to raise interest rates further, Dallas Fed President Lorie Logan said on Monday.
"I expect that continued restrictive financial conditions will be necessary to restore price stability in a sustainable and timely way," Logan, one of the Fed's more hawkish policymakers, told the National Association for Business Economics, noting that financial conditions have become "notably" tighter in recent months, even though the U.S. central bank has not raised its short-term policy rate since July.
A good part of that rise, she said, may come from investors demanding to be paid more for holding U.S. debt over a longer-term, reflecting a higher so-called "term premium."
"If long-term interest rates remain elevated because of higher term premiums, there may be less need to raise the fed funds rate," Logan said.”
We continue to be underweight durations on fixed income assets in spite of our view that we are near the end of significant rate increases. Shorter durations have limited some of the impact of interest rating increases on portfolio strategies. We will continue to monitor conditions to see if additional adjustments are needed.