“Higher for Longer” is Over

Michael LebowitzAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Jerome Powell and his colleagues endlessly reassert their “higher for longer” plan for interest rates. They aim to weaken economic growth and bring inflation back to pre-pandemic levels. The Fed has little choice because the government can’t afford the higher-for-longer stance for much longer!

In the past few months, I have written many articles and daily commentaries touting bonds, including last week’s article, My Elevator Pitch for Bonds. The article succinctly boiled down my case to “this time won’t be different.” The pandemic-related factors that drove inflation and interest rates higher were one-time in nature. I believe 40-year economic trends will re-exert themselves and push yields much lower.

A reader countered, “Astronomical future government deficits and the debt required to fund them may be the fly in your ointment.”

My reply: I agree government deficit spending and, therefore, debt will only become more significant. For that very reason, the Fed and government can ill afford to maintain today’s interest rates. Fiscal spending projections only raise my conviction of the value of owning bonds at today’s relatively high yields.