June 19, 2024
Some big US bond investors say Fed hikes are overdue despite sticky inflation


By David Barbuscia

NEW YORK (Reuters) – Some big U.S. bond investors said on Wednesday they believe the Federal Reserve has reached its peak in its interest rate hike campaign, despite inflation rising in August due to rising energy prices.

A report from the Labor Department on Wednesday showed that US consumer prices rose by the most in 14 months in August due to rising gasoline prices, although the annual increase in underlying inflation was the lowest in nearly two years.

However, some bond fund managers believe it is only a matter of time until the Fed already raises rates by 525 basis points, impacting consumer prices.

“We believe we have seen the last rate hike for this cycle, as the economic data the Fed will see in the coming months will keep them on hold,” said Greg Wilensky, head of U.S. fixed income at Janus Henderson Investors. In a note.

The US central bank last increased interest rates by 25 basis points in July. Bets in the Fed funds futures market showed that traders largely believe the Fed will leave rates unchanged at the conclusion of its meeting on Sept. 20, but late Wednesday called for an additional 25 basis points increase in November’s 40% Priced for potential.

David Kelly, chief global strategist at JPMorgan Asset Management, believes the Fed has already reached the peak of the current monetary tightening cycle. Inflation is likely to fall below the Fed’s 2% target by the end of 2024, he said in a report after the data.

“After today’s data we expect the Federal Reserve will not make any further rate hikes in September and overall, we expect no further rate hikes this cycle,” he said.

Indeed, inflation has proven more stable than many anticipated since the Fed began raising rates in March last year to cool the economy. Due to this, some big investors are hesitant to place bets on the end of Fed’s tightening.

Rick Ryder, BlackRock’s chief investment officer for global fixed income, said on Wednesday that inflation is likely to run at higher levels than before the COVID-19 pandemic, over time, due to large government deficits and largely structural factors. There was a “worrying” possibility. Debt level.

Still, he expects bearish price pressures to continue, albeit with some volatility.

“The fight against inflation will face moderate disappointments from time to time… but the trend toward lower and more sustainable rates of inflation is sustainable in our view,” he said.

(Reporting by David Barbuscia; Editing by Ira Iosebashvili and Daniel Wallis)

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