Capital markets are guessing whether the Federal Reserve will continue to elevate rates, pause, or cut. A multifaceted approach to income may be necessary in a macroeconomic backdrop of impending rate volatility.
For the most part, capital markets are widely expecting more rate hikes. But only a fly on the wall of a Fed meeting may know the real answer. According to a Morningstar report, “the Fed is seen as keeping the door open to additional interest rate increases in coming months in case there’s evidence that recent improvements in inflation are stalling out or even reversing against the backdrop of a strong economy.”
Of course, the Fed recently decided to keep rates steady. But can certainly pivot and pump the brakes on hikes if economic data provides evidence a slowdown could be forthcoming. As such, a pause would allow the Fed to continue its path toward a “soft landing” when it comes to adjusting monetary policy while keeping economic growth moving forward.
“I don’t think getting slightly more restrictive in this environment is urgent. But I would expect the Fed to leave its options open,” said Donald Rissmiller, chief economist at Strategas Research Partners. He was in the camp of those who were thinking the Fed may hold rates steady this week (which it did).
Nonetheless, for fixed income investors who want to avoid playing the Fed guessing game, diversifying income sources can help in that regard.
Get Income Across Various Sectors
Getting fixed income exposure these days could mean just focusing on bonds. This is especially so given the rising tide of yields lately. However, truly diversifying an income portfolio takes a multifaceted approach. This is inherent in one fund: the American Century Multisector Income ETF (MUSI ).
MUSI pursues attractive income and total return by balancing interest rate and credit risk in a portfolio that spans investment-grade, high yield, securitized, and emerging market debt securities. With its active management strategy, portfolio managers have the flexibility to adjust sector and credit quality as opportunities emerge to help enhance yield and reduce risk.
Having that degree of flexibility is a must in current times. Raise rates, lower rates, or pause, MUSI gives investors an income strategy that can change with the times.
As of September 29, MUSI has a 30-day SEC yield of just over 6%.
For more news, information, and analysis, visit the Core Strategies Channel.
