Private-Markets Investing in an Era of Higher Rates
Investors searching for yield flocked to private markets when interest rates were low and public equity valuations were high.
The Federal Reserve delivered on expectations for a smaller rate hike on Wednesday, after new inflation data showed that US consumer price growth slowed for a fifth straight month. However, with inflation still elevated, policymakers expect to raise rates further in 2023 than they previously forecast. The central bank, which lifted rates by 50 basis points at its December meeting, expects the fed funds rate to peak at 5.1% next year, up from officials’ median projection in September of 4.6%. That pencils in cumulative rate hikes of roughly 75 basis points from the current target range.
Recent data showed a “welcome reduction” in the inflation rate, but “it will take substantially more evidence to give confidence that inflation is on a sustained downward path,” Fed Chair Jerome Powell said in a press conference. Meanwhile, Powell signaled that a smaller quarter-point rate increase would be under consideration at the Fed’s next meeting, saying “it’s now not so important how fast we go” after the outsized hikes of 2022. In Europe, the Bank of England and European Central Bank also raised interest rates by half a percentage point on Thursday.
Despite recent improvements in inflation data, the Fed doused market hopes for a more dovish tack ahead, PGIM Fixed Income explains in a new post on The Bond Blog.
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