Case for "Extended Pause" in Fed Interest Rates as Inflation & Jobs Gap Widens

The Fed is expected to remain on an extended pause through year-end, but a strong labor market and sticky inflation increase the risk of a rate hike. Schwab recommends below-benchmark duration, favoring short/intermediate maturities, and is positive on investment-grade and high-yield corporates given economic resilience.

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Charles Schwab 7.8
Asset Manager $890.00B
Collin Martin 9.0

Case for "Extended Pause" in Fed Interest Rates as Inflation & Jobs Gap Widens

ndx

The guest notes the AI trade is cooling off and record inflows into bonds, suggesting a rotation out of tech/growth, implying near-term caution for NDX.

wti

The guest says oil and gas prices have already moved up and may hold steady, implying near-term upward pressure but with uncertainty about pass-through.

yields

The guest recommends below-benchmark duration and sees more upside risks than downside risks for long-term Treasury yields, implying yields are expected to rise or stay elevated.

Speaker1

Asks if the jobs report changed the narrative for the Fed.
Collin Martin

The Fed is on an extended pause, but a strong labor market and high inflation support the case for a rate hike. The first step is a shift from easing to neutral at the next meeting.
Speaker1

Asks for the house view on rates for the remainder of the year.
Collin Martin

House view is the Fed holds steady through year-end, but inflation is moving in the wrong direction and the labor market is strong. Hawkish member Beth Hammack acknowledged a rate hike may be needed if conditions persist, but not urgently.
Speaker1

Asks for CPI expectations.
Collin Martin

Core CPI expected at 2.9% YoY; a 3-handle might spook markets. Oil and gas price increases may already be priced in, but the key question is how much gets passed through to core inflation.
Speaker1

Asks what to tell clients regarding opportunities.
Collin Martin

Below benchmark duration; prefer short/intermediate maturities over long duration. Favorable on investment-grade and high-yield corporates, and preferred securities, given economic resilience.
Speaker1

Asks if clients are discussing the 60/40 portfolio and AI risks.
Collin Martin

Bonds still provide portfolio ballast. 4-5% yields are attractive for support, even if equity returns have been higher recently.
Speaker1

Notes record $40 billion inflows into bonds last week as the AI trade cooled off.

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