Pacific Funds, May 2018

Informational commentary from Pacific Asset Management, manager of Pacific FundsSM Fixed-Income Funds.

As expected, the Federal Open Market Committee (FOMC) voted to maintain the range of the federal funds target rate at between 1.50% and 1.75%. The Committee also maintained language indicating “further gradual increases,” which was expected; however, added a new adjective, “symmetric,” to the inflation target. Below are some brief notes:

  • The FOMC maintained the range for the federal funds target rate at between 1.50% and 1.75%.
  • Language changes in the May statement (shown in italics):
    • Added language related to job gains; Job gains have been strong, on average, in recent months. (neutral)
    • Business fixed investment continued to grow strongly, versus moderated from their strong fourth-quarter readings. (hawkish)
    • Inflation for items other than food and energy have moved close to, versus continue to run below 2 percent. (hawkish)
    • Added language (symmetric) to describe the 2% inflation objective to create more flexibility if inflation were to move higher than 2%. (dovish)
    • Adjustments to the statement on the economic outlook to state: Risks to the economic outlook appear roughly balanced removing but the Committee is monitoring inflation developments closely. (neutral)
  • Core personal consumption expenditures (PCE) inflation rose in line with Federal Reserve (Fed) expectations to 1.9% year-over-year in March, hovering near the Fed’s 2% target. This is the largest increase since February 2017 according to the Commerce Department report.
  • Federal funds futures, as forecast by Bloomberg, currently show a 100% chance of an interest-rate hike to be announced in the June 2018 meeting.1
  • Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams.
Market Response

Despite the recent strengthening in the U.S. dollar and a slightly more dovish tone from the Committee (the hawkish language changes were already priced in to the markets), markets had little reaction following yesterday’s meeting. Citing the symmetric inflation goal was, in our opinion, the most notable change, as it does not force the FOMC to respond quickly if inflation were to move above 2%. The discussion reinforced a gradual approach to increasing interest rates.

Looking Forward

Despite the language changes in the statement, we believe investors likely will look to minutes from this meeting, as well as the upcoming June meeting, to provide clues as to the probability of a fourth interest-rate hike in 2018. In the meantime, yields have moved higher across the curve year-to-date, resulting in shorter-duration bonds and floating-rate loans outperforming their longer-duration interest-rate-sensitive peers. We continue to see floating-rate loans as a defensive approach to obtain yield and short-duration corporate debt as providing an attractive risk/return profile given the recent widening of spreads across the curve.


1Bloomberg Finance L.P., 5/3/18.


Core personal consumption expenditures (PCE) price index is the Fed’s preferred measure of U.S. inflation, which measures the prices consumers pay for goods and services without the volatility caused by energy and food prices.

Dovish refers to an indication the Fed may lower interest rates.

Hawkish refers to an indication the Fed may raise interest rates.


This publication is provided by Pacific Funds. Pacific Funds refers to Pacific Funds Series Trust. This commentary reflects the views of the portfolio managers at Pacific Asset Management as of May 3, 2018, are based on current market conditions, and are subject to change without notice. These views represent the opinions of the portfolio managers and are presented for informational purposes only. These views should not be construed as investment advice, an endorsement of any security, mutual fund, sector, or index, the offer or sale of any investment, or to predict performance of any investment. Any forward-looking statements are not guaranteed. All materials are compiled from sources believed to be reliable, but accuracy cannot be guaranteed.

All investing involves risk, including the possible loss of the principal amount invested.

Pacific Life Insurance Company is the administrator for Pacific Funds. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.


Pacific Life Fund Advisors LLC (PLFA), a wholly owned subsidiary of Pacific Life Insurance Company, is the investment adviser to the Pacific Funds. PLFA also does business under the name Pacific Asset Management and manages certain funds under that name.

Bloomberg Finance L.P. is unaffiliated with Pacific Life Insurance Company, Pacific Funds, their affiliates, their distributors, and representatives.