Pacific Funds, July 2017

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

As expected, the Federal Open Market Committee (FOMC) kept the federal funds target rate range unchanged at 1.00%–1.25%. There were also very few changes in the July press release. Below are some of our notes:

  • The FOMC maintained the range for the federal funds target rate at between 1.00% and 1.25%.
  • Language changes in July (shown in italics) were minimal and came in the first and fifth paragraphs of the written comments from the Committee:
    • Household spending and business fixed investment have continued to expand, versus Household spending has picked up [a slight hawkish change].
    • For the time being was added to the opening of the fifth paragraph [this was added for flexibility].
    • The Committee expects to begin implementing its balance sheet normalization program relatively soon, versus this year [a slight hawkish change].
  • There was no change regarding the pace of increases for the federal funds target rate in this statement. Expectations are for one more rate hike during 2017.
  • Federal funds futures, as forecast by Bloomberg, currently show a 41% chance of an interest-rate hike to be announced by year-end.1
  • There were no dissenting votes.
  • New “dot plots” will be released at the September 2017 meeting.
  • The Jackson Hole Economic Symposium will be held in August 2017. This should provide even more transparency on the pace of normalization.
     
Market response

Markets have shown little reaction as this result was widely expected. The most significant change in this release is the moving forward of the balance-sheet reduction. We would not be surprised if the Federal Reserve (Fed) were to provide the specific timing of the balance-sheet reduction plans at the September meeting. Additionally, the recent inflation data provides room for the Fed to pause for a meeting or two while continuing to progress with its data-dependent methodology.

 

1Bloomberg Finance L.P., July 26, 2017.


Definitions

Hawkish refers to an indication the Federal Reserve may raise interest rates.

A dot chart or "dot plot" is a statistical chart consisting of data points plotted on a fairly simple scale used to project the rate path.

The Jackson Hole Economic Symposium is an annual meeting sponsored by the Federal Reserve Bank of Kansas City, which focuses on important economic issues that affect both U.S. and world economies. Attendees include financial market players, central bankers, and academics from around the world.


Disclosures

This publication is provided by Pacific Funds. Pacific Funds refers to Pacific Funds Series Trust. This commentary reflects the views of the portfolio managers as of July 27, 2017, are based on current market conditions, and are subject to change without notice. These views represent the opinions of the portfolio managers at Pacific Asset Management 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.

PLFA3

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.