While the Fed's actual changes in policy can adjust to the recovery's progress, searing hot growth and soaring inflation is keeping the markets on edge. Against that backdrop, the message from the Fed's June 16th meeting of sooner and steeper rate hikes embedded in the Fed's dot plot understandably drove a selloff in the bond market. Looking ahead, PGIM Fixed Income continues to think that rates are likely to peak around mid-year - if they haven't peaked already. Looking further ahead, PGIM Fixed Income believes the reversion towards more moderate growth and inflation in the years ahead is not priced in to the market, suggesting that as the growth and inflation crest this year, longer-term yields are likely to modestly decline, boosting bond returns, and fueling an ongoing search for yield in fixed income.
1049409-00001-00 Ed: 06/2021