A report published last week updated our outlook for Fed policy following the FOMC meeting. There was broad support within the FOMC to start tapering shortly, but the Fed is still split over issuing its first rate hike next year, although it would be well-warranted. However, we expect that robust economic growth in the coming 6-12 months and resilient core inflation will eventually pressure to Fed to move faster on lifting rates than they currently envision.
The consensus has belatedly shifted closer to our forecast for higher inflation in the coming year or two, and even the Fed is slowly awakening to the upside potential in inflation. The Fed’s “transitory” inflation narrative will prove – transitory!
The bottom line: we remain maximum underweight bonds within a multi-asset portfolio.