In its September announcements, the Fed gave mixed signals: on the one hand, the markets are discounting a series of rate cuts, on the other — Fed representatives (m.in. Beth Hammack) are warning of persistent inflationary pressures, especially in the services segment. Official documents from mid-September confirm that the FOMC Committee is still at the center of its 2% inflation target, but “dot plot” forecasts suggest the possibility of several cuts in the coming months.
Such a combination means that markets will be sensitive to any inflation report and employment data: weaker reports will increase the likelihood of policy easing and favor equity and commodity markets, strong data may restore pressure on yields and offset expectations of cuts. Short-term investors are advised to follow the PCE/Core PCE and the announcements of Fed members.
For the portfolio: Think about hedging your bond exposure (shorter duration) and consider the increase in the share of assets that typically benefit from lower rates (e.g., commercial real estate with stable flows, selected sectoral ETFs) but with liquidity.