The highly anticipated Federal Open Market Committee (FOMC) meeting ended up having very little surprises. There are no changes to the fed funds rate which was expected. The FOMC also signaled its tapering of quantitative easing (QE) purchases would conclude at the end of March which would also correspond with the first rate hike; both of which were also anticipated. It also stated that it expects balance sheet runoff (i.e., quantitative tightening or QT) to occur sometime after the first rate hike, with the primary mechanism to accomplish this to be via maturities versus outright sales. Otherwise, the FOMC was relatively quiet on providing additional insight into how quickly and how far it intends to hike rates, when it will start winding the balance sheet down, how fast it will let the balance sheet shrink, and the total size of the reduction.
In many regards, this isn’t surprising. The FOMC has historically opted to retain its flexibility on monetary policy versus painting itself into a corner and commit to a pre-defined path. Fortunately, the FOMC (and Jay Powell at his presser) didn’t come off as being more hawkish than the market expected. Unfortunately, he didn’t rule out the FOMC being more hawkish, either. This means the market is free to climb the wall of worry about just how hawkish the FOMC will be in the coming days/weeks—at least until FOMC speakers can come out and help the market re-calibrate.
We came into the meeting believing the FOMC would hike in March (check), QE would end in March (check), QT would begin in June or July (TBD), and hike three, maybe four times this year (TBD). Nothing we heard today dissuades us from those opinions, but we will have to see if individual committee members’ public comments indicate consensus is more or less hawkish than what the market is pricing in. We believe elevated levels of volatility could persist across all market sectors until the FOMC solidifies its future plans and is willing to telegraph those plans to the market.
This material is provided by Aegon Asset Management (Aegon AM) as general information and is intended exclusively for institutional and wholesale investors, as well as professional clients (as defined by local laws and regulation) and other Aegon AM stakeholders.
This document is for informational purposes only in connection with the marketing and advertising of products and services, and is not investment research, advice or a recommendation. It shall not constitute an offer to sell or the solicitation to buy any investment nor shall any offer of products or services be made to any person in any jurisdiction where unlawful or unauthorized. Any opinions, estimates, or forecasts expressed are the current views of the author(s) at the time of publication and are subject to change without notice. The research taken into account in this document may or may not have been used for or be consistent with all Aegon AM investment strategies. References to securities, asset classes and financial markets are included for illustrative purposes only and should not be relied upon to assist or inform the making of any investment decisions. It has not been prepared in accordance with any legal requirements designed to promote the independence of investment research, and may have been acted upon by Aegon AM and Aegon AM staff for their own purposes.
The information contained in this material does not take into account any investor’s investment objectives, particular needs, or financial situation. It should not be considered a comprehensive statement on any matter and should not be relied upon as such. Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to any particular investor. Reliance upon information in this material is at the sole discretion of the recipient. Investors should consult their investment professional prior to making an investment decision. Aegon AM is under no obligation, expressed or implied, to update the information contained herein. Neither Aegon AM nor any of its affiliated entities are undertaking to provide impartial investment advice or give advice in a fiduciary capacity for purposes of any applicable US federal or state law or regulation. By receiving this communication, you agree with the intended purpose described above.
Past performance is not a guide to future performance. All investments contain risk and may lose value. This document contains “forward-looking statements” which are based on Aegon AM’s beliefs, as well as on a number of assumptions concerning future events, based on information currently available. These statements involve certain risks, uncertainties and assumptions which are difficult to predict. Consequently, such statements cannot be guarantees of future performance, and actual outcomes and returns may differ materially from statements set forth herein.
The following Aegon affiliates are collectively referred to herein as Aegon Asset Management: Aegon USA Investment Management, LLC (Aegon AM US), Aegon USA Realty Advisors, LLC (Aegon RA), Aegon Asset Management UK plc (Aegon AM UK), and Aegon Investment Management B.V. (Aegon AM NL). Each of these Aegon Asset Management entities is a wholly owned subsidiary of Aegon N.V. In addition, the following wholly or partially owned affiliates may also conduct certain business activities under the Aegon Asset Management brand: Aegon Asset Management (Asia) Limited (Aegon AM Asia).
Aegon AM UK is authorised and regulated by the Financial Conduct Authority (FRN: 144267) and is additionally a registered investment adviser with the United States (US) Securities and Exchange Commission (SEC). Aegon AM US and Aegon RA are both US SEC registered investment advisers. Aegon AM US is also registered as a Commodity Trading Advisor (CTA) with the Commodity Figures Trading Commission (CFTC) and is a member of the National Futures Association (NFA). Aegon AM NL is registered with the Netherlands Authority for the Financial Markets as a licensed fund management company and on the basis of its fund management license is also authorized to provide individual portfolio management and advisory services in certain jurisdictions. Aegon AM NL has also entered into a participating affiliate arrangement with Aegon AM US. Aegon AM Asia is regulated by the Securities and Futures Commission of Hong Kong (CE No. AVR688) to carry out regulated activities in Dealing in Securities (Type 1) and Advising on Securities (Type 4).