![]() The Federal Open Market Committee operates. ![]() ![]() “The probability of a soft landing has definitely gone down, but the probability of a hard landing has also probably come down a little bit” given the signs of continued demand in the economy, said Steve Bartolini, portfolio manager for the T Rowe Price US Core Bond Strategy. the money supply to reach that interest-rate target, which will normally remain unchanged until the next meeting. employment – an important snapshot of the broader economy – grew faster than expected in August. Some investors think the economy may be resilient enough to withstand a more aggressive Fed. The firm nevertheless sees a 65% chance of a recession in the next 24 months. “Overtightening would come with material economic pain … risk and liquidity stress,” said Daniela Mardarovici, co-head of multi-sector fixed income at Macquarie Asset Management.Īndrew Patterson, senior international economist at Vanguard, believes it may be preferable for the Fed to err on the side of aggressive action, given how stubborn inflation has been. Policymakers indicated Wednesday that a pause in tightening could be on the table at the Feds next meeting in mid-June. “By doing so, they increase the risk of a recession rather than the soft landing that they are seeking to achieve.”īoivin is underweight developed market equities and does not find government bonds attractive given that BlackRock expects the Fed to raise rates to 4.50% or higher next year. “There is rising risk that the Fed … will overshoot with rate hikes in response to stubbornly high inflation data,” said Steven Oh, Global Head of Credit and Fixed Income, Co-Head of Leveraged Finance at PineBridge Investments. The Fed’s key policy rate stands at 2.25 to 2.5%. Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund, wrote in a recent Linkedin post that a rise in rates to about 4.5% could sink stocks by about 20%. Yet worrying signals are easy to find, from a dire earnings shortfall from delivery firm FedEx that the company blamed on slowing growth to a warning from the World Bank that even a “moderate hit” could send the global economy into a recession.ĭoubleLine’s Chief Executive Jeffrey Gundlach, who had in June criticized the Fed for moving too slowly, told CNBC last week he was worried the Fed might hike rates too far. data has shown an economy that appears to be humming along, despite 225 basis points in tightening already delivered by the Fed. “We’re all scared of over-tightening and the hard landing scenario, because the Fed has over-tightened and caused hard landings more often than they have not,” said Jeffrey Sherman, deputy chief investment officer at bond fund DoubleLine.
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