Skip to main content
JPAM_logo
  • Funds

    Fund Listing

    • Fund Explorer
    • Fund Distribution
    • Fund Documents

    Capabilities

    • Equities
    • Fixed Income
    • Multi-asset

    Featured Funds

    • Income Solutions
    • Sustainable Infrastructure Fund
    • Future Transition Multi-Asset Fund
  • Insights

    Market Insights

    • Market Insights Overview
    • Guide to the Markets
    • Weekly Market Recap
    • On the Minds of Investors
    • Guide to China
    • Multimedia

    Portfolio Insights

    • Portfolio Insights Overview
    • Long-Term Capital Market Assumptions
    • Global Asset Allocation Views
    • Global Fixed Income Views

    Retirement Insights

    • Retirement Insights Overview
    • Principles for a Successful Retirement
    • Building Better Retirement Portfolios
    • Are you letting volatility derail your retirement plan?
  • Investment Ideas
    • What's new
    • Managing Volatility
    • Retirement and long-term investing
    • Sustainable Investing
  • Resources
    • Announcements
    • Forms & Literature
    • Investment Glossary
    • Library
    • Insights App
    • WhatsApp Communication
  • About Us
    • Awards
    • Corporate and Social Responsibility
  • Partner With Us
  • Language
    • English
    • 中文/ Chinese
  • Role
  • Country
  • Search
    Search
    Menu
    You are about to leave the site Close
    J.P. Morgan Asset Management’s website and/or mobile terms, privacy and security policies don't apply to the site or app you're about to visit. Please review its terms, privacy and security policies to see how they apply to you. J.P. Morgan Asset Management isn’t responsible for (and doesn't provide) any products, services or content at this third-party site or app, except for products and services that explicitly carry the J.P. Morgan Asset Management name.
    CONTINUE Go Back
    1. FOMC Statement & Potential Impact on Fixed Income

    FOMC Statement & Potential Impact on Fixed Income

    Global Fixed Income, Currency & Commodities

    01/08/2019

    Ramon Maronilla

    IN BRIEF

    • The Federal Open Market Committee (FOMC) cut the Fed Funds rate target range by 25 bps to 2.00%-2.25%. The news was met with some disappointment, as the market thought core members of the FOMC would advocate for more aggressive action (a view we shared). The post-announcement and more notably the reaction to Federal Reserve (Fed) Chairman Jerome Powell’s press conference moved equities lower, reduced inflation expectations and the U.S. Treasury yield curve flatter. The market reaction indicated that the decision to cut 25 bps was underwhelming despite a commitment to do more if needed and an early end to the balance sheet reduction. 
    • Outside of the rate cut and the early end to the balance sheet, the July FOMC statement maintained most of the language used in the June statement such as the comment that the Fed will act as necessary in order to sustain the expansion. While the Committee still expects a strong labor market and 2% inflation are the most likely outcomes, the statement maintained mentions of uncertainties in conjunction with muted inflation pressures as reasons to closely monitor the data.
    • There were two dissenters at the meeting, Esther George and Eric Rosengren both preferring to keep interest rates unchanged.

     

    Committee Statement

    We can break the statement into two parts:

    • Economic Assessment—The Committee modestly adjusted its current assessment in order to reflect recent data released on the labor market and U.S. economic activity. While household spending picked up, business investment remained soft. On inflation, the Committee characterizes inflation expectations as having declined according to market-based measures. Realized inflation remains low with both headline and core inflation below the 2% target.
    • Outlook—The Committee maintained the following statement that they will “continue to monitor” incoming information given remaining uncertainties and muted inflation pressure. While the Committee continues to expect the most likely outcome to be sustained growth accompanied by a strong labor market and inflation matching their objective, they maintained language in the statement to reinforce the fact that the Committee is willing to take action and adjust policy in order to sustain the expansion. 

     

    Chair’s Press Conference

    Chair Powell spent the majority of his time explaining the Committee’s rationale for easing monetary policy. He highlighted the weak global growth backdrop and soft U.S. manufacturing sector in contrast to the continued strength in the labor market. On the inflation side, Chair Powell continued to express concerns around inflation remaining below the Fed’s 2% personal consumption expenditures  target and the risks that inflation expectations could slide lower and become unanchored.

    The crux of Chair Powell’s case for easing was centered on the desire to take incremental steps to ease policy in the face of heightened uncertainty and protect against downside risks of weak global growth and muted inflation.

    The Chair was challenged by a number of questions including if 25 bps was sufficient to address the FOMC’s concerns and if this rate cut was part of an easing cycle or a just a one-time adjustment. His responses oscillated around concepts of a “mid-cycle rate cut” or an “easing cycle”. Overall, the Chair struggled to communicate the Committee’s thinking on the policy actions today and especially on the path going forward. This was in sharp contrast to comments made by the Chair and Vice-Chair as recently as two weeks ago.

     

    Our View

    • We expect the Fed to cut policy rates two additional times in 2019 in order to address the downside risks to U.S. growth, rising trade tensions and a slowing U.S. manufacturing sector with risks to business investment. We view 1.75–2.25% as the range for the 10-year Treasury yields under this environment in which trade risks remain elevated and the Fed responds to slowing industrial production.
    • In today’s meeting, the Committee signaled their willingness to act preemptively although the Chair’s press conference performance adds uncertainty to the extent to which the Fed will act aggressively. 
    • The case for the Fed to continue to ease policy further is bolstered by low inflation that is below the Fed’s 2% target. The Fed is also conducting a monetary policy review this year in which they appear to be considering a modification to their inflation strategy in order to better achieve their inflation objective and avoid a downward drift in inflation expectations. Although a formal change is not imminent in the next few months, the trend of Fed speakers indicates the Committee is leaning towards some type of change that would encourage more inflation and could result in an average inflation target—which would incorporate past misses in inflation more explicitly. The result would mean easier policy for longer unless realized inflation rises more materially and could also mean additional rate cuts would be justified if inflation is weakening along with softening growth prospects.
    • We were disappointed in the Chair’s press conference and felt that the message was inconsistent with previous communication, causing more undo volatility than was expected. We expect other members will be speaking publicly to re-anchor investors’ expectations around the policy response given their objective to extend the cycle for as long as possible. Looking beyond the disappointing press conference, we believe the FOMC is employing a proactive risk management approach as opposed to a reactionary policy. It remains to be seen if the risk managed approach can offset the potential negative outcomes that have thus far been associated with the U.S.-China Trade policy/uncertainty.
    • The Fed fully closed the book on balance sheet normalization which is set to end two months early, in August. 

    RELATED INSIGHTS

    Global Asset Allocation Views

    Global growth is above trend, but changes to U.S. trade policy and the impact of higher U.S. rates have increased risks to our outlook. We overweight stocks, but trim our positioning, upgrade duration to a small overweight and remain neutral on credit.

    Learn more

    Global Fixed Income Views

    Themes and implications from the Global Fixed Income, Currency & Commodities Investment Quarterly meeting.

    Learn more

    Guide to Alternatives

    This is a sister publication to Guide to the Markets, delivering insight on macro topics like fundraising and manager dispersion, while also diving into real estate, infrastructure & transport, private credit, private equity and hedge funds in detail.

    Learn more

    Featured Funds

    JPMorgan Asian Total Return Bond Fund

    To achieve a competitive total return, consisting of capital growth and regular dividend income, through an actively managed portfolio investing primarily in Asian bonds and other debt securities.

    Fund details

    JPM Income Fund

    To provide income by investing primarily in a portfolio of debt securities.

    Fund details

    JPM Asia Pacific Income Fund

    To provide income and long term capital growth by investing primarily in income generating securities of countries in the Asia Pacific region (excluding Japan).

    Fund details

    IMPORTANT DISCLAIMER

    For the purposes of MiFID II, the JPM Market Insights and Portfolio Insights programs are marketing communications and are not in scope for any MiFID II / MiFIR requirements specifically related to investment research. Furthermore, the J.P. Morgan Asset Management Market Insights and Portfolio Insights programs, as non-independent research, have not been prepared in accordance with legal requirements designed to promote the independence of investment research, nor are they subject to any prohibition on dealing ahead of the dissemination of investment research.

    This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

    J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.

    To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://am.jpmorgan.com/global/privacy.

    This communication is issued by the following entities:

    In the United States, by J.P. Morgan Investment Management Inc. or J.P. Morgan Alternative Asset Management, Inc., both regulated by the Securities and Exchange Commission; in Latin America, for intended recipients’ use only, by local J.P. Morgan entities, as the case may be. In Canada, for institutional clients’ use only, by JPMorgan Asset Management (Canada) Inc., which is a registered Portfolio Manager and Exempt Market Dealer in all Canadian provinces and territories except the Yukon and is also registered as an Investment Fund Manager in British Columbia, Ontario, Quebec and Newfoundland and Labrador. In the United Kingdom, by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions, by JPMorgan Asset Management (Europe) S.à r.l. In Asia Pacific (“APAC”), by the following issuing entities and in the respective jurisdictions in which they are primarily regulated: JPMorgan Asset Management (Asia Pacific) Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited, each of which is regulated by the Securities and Futures Commission of Hong Kong; JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), this advertisement or publication has not been reviewed by the Monetary Authority of Singapore; JPMorgan Asset Management (Taiwan) Limited; JPMorgan Asset Management (Japan) Limited, which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Australia, to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Commonwealth), by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919). For all other markets in APAC, to intended recipients only.

    For U.S. only: If you are a person with a disability and need additional support in viewing the material, please call us at 1-800-343-1113 for assistance.

    Copyright 2021 JPMorgan Chase & Co. All rights reserved.

    • Insights
    • Portfolio Insights
    lets-solve-it-logo

    For more information, please call or email us. You can also contact your J.P. Morgan representative.

    (852) 2978 7788

    agents.info@jpmorgan.com

    J.P. Morgan Asset Management

    • Terms of Use
    • Privacy Statement
    • Cookies Policy
    • Investment Stewardship
    • Fund Notes
    • Offering Document(s)
    • Forms & Literature
    • Complaint Resolution
    • Guide to Using This Website
    • Sitemap
    J.P. Morgan

    • J.P. Morgan
    • JPMorgan Chase
    • Chase

    Important: This area of the website is intended only for distributors of JPMorgan Funds (Asia) Limited. Information is not intended for retail or public distribution.

    Investment involves risk. Past performance is not indicative of future performance. In particular, funds which are invested in emerging markets and smaller companies may involve a higher degree of risk and are usually more sensitive to price movements. Investors should carefully read and consider the fund offering document(s), which contain details on investment objectives, risk factors, charges and expenses of the fund, before making any investment decisions. Information in this website does not constitute investment advice, or an offer to sell, or a solicitation of an offer to buy any security, investment product or service, nor a distribution of information for any such purpose. Informational sources are considered reliable but you should conduct your own verification of information contained herein. The above information has not been reviewed by the SFC, issued by JPMorgan Funds (Asia) Limited.

    Copyright 2023 JPMorgan Funds (Asia) Limited. All rights reserved.