JAAA - 'Higher For Longer' Redux Implications For Income Portfolios

2024-04-19 22:56:24 ET

Summary

• The Fed is expected to make fewer rate cuts in 2024 than earlier expected due to a rebound in inflation readings and a strong labor market.
• This "higher for longer" redux is familiar to income investors, and we revisit the theme from when we last highlighted it in 2022.
• Compared to last year, we have an up-in-quality focus and like both floating-rate assets as well as longer-duration fixed-rate sectors.

In September of 2022 we published an article talking about the implication of a "higher-for-longer" Fed policy for income portfolios. Back then the Fed was a bit more than half-way done with its rate cycle. Our view at the time was that the Fed was likely to keep hiking strongly to reestablish its credibility and it was likely to hold the policy rate in place, both as a matter of historic pattern as well as to ensure inflation really was finally beaten. So far this has played out. What has not played out was our expectation of a modest growth downturn. Sure, some areas of the economy are in retreat, most notably manufacturing and parts of commercial real estate, however, they are more than offset by strength in services....

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