Last Wednesday, Fed Chairman Jerome Powell signaled that the rate hike cycle is close to done. He said the central bank has been able to slow inflation growth without cratering the economy. Money managers see Powell’s speech as an unofficial “no more rate hikes” announcement.
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Financial markets have never had to reckon with a speculative asset mania, unsustainable bubbles in consumer, corporate, and sovereign debt, and structurally high inflation – all at the same time. The potential for significant economic turmoil is arguably greater than at any time in memory.
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Most investors believe the Fed is done or nearly done with its inflation-fighting interest rate hikes – and so far, no recession is in sight. That means perceived risk will remain subdued in the high yield bond sector… for now.
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