The US Fed held rates overnight. In this brief Q&A, Robert Tipp, Chief Investment Strategist & Head of Global Bonds, PGIM Fixed Income reviews the FED performance and believes now is a strategically good time to buy bonds.
How do you rate the success of the Federal Reserve up to this point in the cycle?
In terms of supporting what the Federal Reserve has done, the rate of growth of the economy has been firm. The rate of inflation has come down at a headline basis by 5-6 percent, by nearly 3% on a core basis. Some have asked the question, does the Fed want a recession? They want a soft landing, and they got conditions restrictive enough to bring down inflation quite a bit. Wage growth has decelerated, and they managed to do that while unemployment has remained low, growth has continued. So, it’s been a very successful go for the Federal Reserve.
Did they start late?
Yes, but I think their pandemic practice was a little light. We don’t have a lot of active central banker data points in terms of how you’re supposed to do it. I think so far so good, and they’re trying to hone the message here.
Are you a buyer of bonds because you think the Fed can achieve what’s viewed by many as the unicorn of a soft landing?
I think the unicorn arrived in 2019. After the 2018 cycle, we were on our way to a soft landing that was interrupted by a pandemic, so maybe not. The late 90s saw another soft landing after the ‘94 cycle, so the soft landings are there. The problem is a lot of people saw the .com bubble burst. They saw the GFC burst, and we don’t have that kind of a backdrop now. and a lot of people are used to seeing funds rate up, funds rate down, crash, big problems. They’re not used to seeing it. It doesn’t mean it never happened. Soft landings have happened, and it looks like we’re on our way there.
Is this a buy point for fixed income?
It is. Strategically when you get to the end of the Fed rate hiking cycle, that’s where you’re going to be seeing the peak in interest rates. That was probably at the end of September last year. We were getting into that buy zone at the end of 2022. We remain there now. We’re seeing a lot of support for the market. That’s why the risk premiums in the market are so narrow, but they’re likely to remain narrow. Overall the Federal Reserve is managing a very successful course here.
