Seth Meyer: Hi, I’m Seth Meyer, Fixed Income Portfolio Manager here at Janus Henderson, giving you a quick update and quick takeaways in what we saw in the Fed meeting today.

Nothing really changed in regards to what the Fed was expecting or what the market was expecting. The fact that the markets had really started pricing in the potential that the Fed was going to utter the word that we didn’t want to hear, which was “hike” … the Fed went out of their way today to tell us that not only is a hike completely out of the question, but in most cases and in most scenarios, a cut is most likely. Now, when you think about what they were forecasting in March, which was three cuts, or at the start of the year, which was six, we’re significantly lower than that number, which is clear.

Where does the number actually shake out? Most likely, somewhere between zero and one for the year is probably where the Fed thinks they’re going to end up. The reasons are clear: Inflation is running hotter than expected to start the year. Whether you’re looking at CPI [Consumer Price Index] or the Fed’s preferred measure, which is PCE [Personal Consumption Expenditures], inflation is hotter than they expected. The stickiness of where we’re seeing the inflation pressures are also worrisome.

Economic growth remains relatively resilient – and actually, employment remains relatively strong. Both of those things the Fed is actually really comfortable with. I think what the Fed is really trying to do and really trying to position is just [to] buy time. As I think about sort of outlooks and forecasts and thinking about where the Fed can take rates, it’s about just holding on and waiting to see if they’ve done enough.

Is five and 3/8, in the midpoint of their range, enough to actually start solving this inflation riddle that they’ve been fighting now for quite some time? That remains to be seen. It’s very clear by the conversations today, whether it be in the release or the press conference, that the word “hike” was not only not discussed, but wasn’t something they were thinking about.

The only real new news that we had from the Fed release was actually the continued runoff of their balance sheet, just at a slower rate. They’ve chosen to leave their mortgage runoff rate exactly the same as where they were before, but actually reduce their Treasury runoff from $60 billion to $25 billion per month. So, although they continue to reduce the aggregate size of the balance sheet, they’ve chosen to do it in a slower manner.

At Janus Henderson, we still do believe that the Fed’s restrictive policy is slowing economic growth and is curtailing inflation, but it is clear it’s doing it at a slower rate than what we saw at the end of 2023. We also believe that patience is the right remedy. We believe right now that the longer we stay restrictive, the more likely it is the Fed does eventually get back to their 2% target.

As we look forward and we think about the deployment of capital from an investor perspective, a multi-sector approach to this fixed income market is really what we believe in to generate the best risk-adjusted returns. The key reason is the volatility the Fed is creating in the fixed income markets today is creating numerous opportunities, whether it be comparing securitized assets versus corporate credit or really leaning in on duration when you feel it’s appropriate.

Whether it’s higher for longer or higher for now, we think investors should really be leaning into these decade-high yields.