U.S. bond investors were gauging how to navigate a prolonged period of higher interest rates that some expect to weigh on U.S. growth, after the Federal Reserve on Wednesday left open the possibility of more rate increases and excluded easing financial conditions anytime soon.
Still, some fixed income investors have remained on edge over how long the Fed can keep interest rates at restrictive levels without sparking an economic downturn. Timing such a shift is important in part because a weaker economy would, in theory, cause the Fed to cut rates, weigh on the high yields many have enjoyed this year and spark a rally in bond prices.
Powell, meanwhile, said the central bank’s staff no longer forecasts a U.S. recession, and “we do have a shot” for inflation to return to target without high levels of job losses.BlackRock, the world’s largest asset manager, is among those advising investors to lock in elevated yields now, in case the Fed may have to cut borrowing costs next year if an economic downturn hits.
The S&P 500 on Wednesday ended little changed following the latest Fed hike. The index is up 19 per cent year-to-date. “They may be done turning the vise but we have to realize that the vise will remain tight for some time,” he said.