Jeffrey Rosenberg, Blackrock Managing Director, discusses the latest Fed decision with Bloomberg's Tom Keene, Lisa Abramowicz, and Jonathan Ferro. They analyze Jerome Powell's statements, market reactions, changing dynamics in the market, impact on different segments of society, and strategies for higher returns.
The Fed decision supports the transitory view of inflation and encourages investors to hold onto a bullish sentiment.
Investors are advised to move their money into term rates and fixed income to lock in higher yields and capitalize on the soft landing sentiment.
Deep dives
The Fed's Validation of Transitory View
During the historic meeting, Jerome Powell's statement supported the transitory view of inflation, giving investors a green light to continue investing. The surprise was the announcement of a 75 basis point increase, indicating the Fed's satisfaction with the validation of their inflation story. Investors are encouraged to hold onto their bullish sentiment until new economic data is released.
The Movement from Cash to Riskier Assets
With the decrease in cash rates, investors are advised to move their money into more term rates and fixed income to lock in higher yields. The sentiment of a soft landing and lack of a recession further bolsters yield and credit risk. The Federal Reserve's willingness to ease financial conditions allows investors to explore riskier assets and achieve higher returns.
Higher Volatility in the Fixed Income Market
As the fixed income market experiences higher levels of volatility, investors should adjust their strategies accordingly. The AG index, a benchmark for fixed income, now has double the volatility it previously had. Mitigating risks involves shorter durations and focusing on the front end of the yield curve, which offers better yields and less price appreciation until a return to normalcy.