Advisors and investors of all kinds are used to closely watching the outcome of each of the Federal Reserve’s meetings, given how critical interest rates are to equity and fixed income markets alike. However, the recent July Fed meeting was particularly crucial. Many were uncertain what direction the central bank would go with interest rates.
Key Takeaways:
- The latest Federal Reserve meeting resulted in rates remaining as-is. Three dissenting officials did call for an interest rate hike.
- Advisors and investors may pivot towards strategies that perform better during interest rate shifts, like active short-duration bonds.
- The Guggenheim Ultra Short Income ETF (GCSH) could offer a particularly appealing approach, due to its flexible sector exposure, consideration of credit risk, and capacity to take advantage of complexity premiums.
Sure, the Fed ended up staying the course and keeping interest rates as-is. However, it’s worth noting that three Fed officials did dissent, instead arguing in favor of a quarter-point rate hike.
“In the inter-meeting period, market attention centered on real data and real economic developments,” noted Kevin Warsh, Federal Reserve Chair, at the FOMC press conference.. “Prices reacted in real time to incoming information, and the reduction in forward guidance may have been a factor. Market participants are learning to play the ball, not the referee. Market prices will continue to respond in the direction and magnitude they see fit. This is, in my view, a change for the better—and we are just getting started.”
Regardless, this meeting marks a fascinating inflection point for fixed income portfolios. The Fed’s already uncertain rate trajectory seems even more murky, so advisors and investors may want to pivot a bit to be more prepared for changing outcomes.
See More: Worried About Inflation? Try Active Short Duration Bonds
