The Federal Reserve extended its wait-and-see interest rate policy at the June FOMC meeting. Officials also appear increasingly divided over the path of interest rates in the second half, prolonging investor and market uncertainty about second half outlooks. Active strategies can help take the pressure and guesswork out of timing and responding to evolving interest rate and inflation narratives.
June’s Fed meeting did little to bring clarity as to the potential interest rate path in the second half. The regulatory body held rates steady once again at the 4.25%-4.5% range as it navigates a complex macro and economic reality.
“For the time being we’re well positioned to wait to learn more about the likely course of the economy,” Federal Reserve Chair Jerome Powell said at a new conference on Wednesday, reported WSJ.
The inflationary impact of tariffs looms large in the second half, with impacts to businesses and rising prices yet to be fully realized. New conflict in the Middle East could add further inflationary pressure from potentially higher energy costs. All lend credence to the cautious approach to cutting rates.
However, the margin impact of tariffs could lead to companies laying off more workers in the second half. Longer-term unemployment is already on the rise, near three-year highs, and a number of risk factors threaten potential economic growth. The Fed currently forecasts for U.S. GDP growth of 1.4% this year, a downward revision from March, with inflation climbing to 3%.
The complexity of factors at play around inflation, unemployment, and macro risks made for a growing divergence of Fed official rate cut views this month. Ten officials anticipate two rate cuts this year, while two expect just one rate cut. Seven, up from four earlier this year, anticipate no rate cuts in 2025.
Advisors and investors looking to risks and opportunities in the second half would do well to consider actively managed strategies. Thoughtfully constructed, discerning portfolios may help investors stay nimble while taking existing and emerging risks into consideration. Unlike the constraints of passive peers, active ETFs can invest beyond indexes. This allows them to capture a wider opportunity set while reducing unfavorable, higher-risk exposures. Such discernment could prove beneficial in volatile, uncertain markets as the inflation, interest rate, and macro narrative evolve in the second half.
T. Rowe Price, an active manager with almost 1,000 investment professionals globally, offers a suite of actively managed ETFs for investors. These include the T. Rowe Price QM U.S. Bond ETF (TAGG ), the T. Rowe Price Ultra Short-Term Bond ETF (TBUX ), and the T. Rowe Capital Appreciation Equity ETF (TCAF ).
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