Viewpoints

Fed’s Latest Shift Still Consistent With Policy Framework

In this Q&A, we discuss how officials’ indications that interest rates may rise sooner than previously anticipated illustrate the Federal Reserve’s more adaptive response to inflation expectations.

At its June 2021 meeting, the Federal Open Market Committee (FOMC) indicated it was discussing options for tapering bond purchases and revised higher its forecast for the path of interest rates. Since then, many investors have been raising questions about the Federal Reserve’s commitment to the new monetary policy framework it introduced in August 2020, which included allowing inflation to overshoot target levels at times.

We believe FOMC participants’ views are still consistent with the August framework. Indeed, the recent increase in longer-term inflation expectations implies less need for above-target inflation in 2023 and beyond.

Log In Or Register
The Author

Tiffany Wilding

North American Economist

View Profile

Latest Insights

Related

Disclosures

Past performance is not a guarantee or a reliable indicator of future results

Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government-agency or private guarantor, there is no assurance that the guarantor will meet its obligations. Diversification does not ensure against loss.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision. Outlook and strategies are subject to change without notice.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the authors but not necessarily those of PIMCO and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2021, PIMCO.

CMR2021-0630- 1706198

Fed Policy Amid Elevated Inflation Concerns
XDismiss Next Article