November 9, 2018
Fed Stays the Course Despite “Red October”
The portfolio managers of Pacific Funds Fixed-Income Funds share their perspectives on the most recent Federal Open Market Committee meeting.
Informational commentary from Pacific Asset Management, manager of Pacific Funds Fixed-Income Funds.
As expected, the Federal Open Market Committee (FOMC) held the federal funds target rate range at 2.00-2.25%. Federal Reserve (Fed) officials sent a slightly more hawkish message in their post meeting statement, signaling that a rate hike is likely coming in December and more could be set for next year. The 2-Year Treasury note rose slightly, briefly touching a new decade high of 2.97%. As of 11/8/18, the spread between the 2-Year and 10-Year Treasury is 26 basis points (one basis point equals 0.01%).
There were very few language changes relative to the September statement. There was, however, change in the verbiage pertaining to household spending and business investment. Language changes and our brief thoughts are noted below.
- Regarding unemployment, the FOMC changed their reference from “stayed low” to “decline.”
- The sentence, “Household spending and business fixed investment have grown strongly” was updated to “Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year.”
- Otherwise, language changes in the November statement were de minimis and uneventful.
- The Fed made no mention of October’s market volatility, which saw the S&P 500® index and NASDAQ Composite Index decline 6.84% and 9.16%, respectively
- Federal funds futures, as forecast by Bloomberg, currently show a 74% chance of an interest-rate hike to be announced in the December 2018 meeting. (1)
- Overall, the market still expects the Fed to continue the path laid out in the September meeting, expecting one more rate hike in 2018 and three in 2019.
(1) Bloomberg Finance L.P., 11/9/18.
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 NASDAQ Composite Index is the market capitalization-weighted index of more than 3,300 common equities listed on the NASDAQ stock exchange.
The S&P 500 index is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the U.S. stock market.
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 November 8, 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.
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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, is the investment adviser to Pacific Funds. PLFA also does business under the name Pacific Asset Management and manages certain funds under that name.
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