Although inflation came in slightly higher than expected in September at 3.7%, experts are divided over Federal Reserve's next step regarding the interest rate.
Lindsay Rosner, head of multisector fixed income investing at Goldman Sachs Asset Management, said it is likely inflation will "surprise the (Federal Reserve) to the downside in 2023, boosting the Fed's confidence that monetary policy has been sufficiently restrictive."
Rosner also said that the latest consumer price index data supports the notion that the Fed is nearing the end of the hiking cycle as the economy remains on a disinflation path.
"We view yields as attractive in the front-end of the U.S. Treasury curve and continue to find value in high-quality corporate and securitized bonds with short to intermediate durations," Rosner added.
GSAM has $2.7 trillion of assets under supervision.
However, Andrew Patterson, senior economist at Vanguard, said the latest CPI report does not change his expectations that the Federal Reserve will enact one to three more interest rate hikes "over the next few quarters." Patterson expects the central bank will tighten a few more times and then keep the rate at some terminal figure until the end of next year.
Vanguard has $7.8 trillion in assets under management.
Although the Bureau of Labor Statistics reported on Oct. 12 that CPI rose 3.7% in the year through September, inflation has been steady since August.
Economists were expecting a 3.6% annualized CPI figure for September, according to financial data firm FactSet Research Systems.
Excluding the volatile food and energy sectors, the core CPI rose by an annualized 4.1% in September 2023.
The Federal Reserve has considered the inflation rate a key factor in its monetary policy.
The Fed's key short-term interest rate is now in a range of between 5.25% to 5.5% — after the central bank kept rates unchanged at the Sept. 20 meeting.
As of the morning of Oct. 12, according to CME Group's FedWatch tool, shortly after release of the CPI data, market participants' pricing of fed fund futures indicated there is a 89.3% probability that the Fed will again keep rates unchanged when it issues its next monetary policy decision on November 1, and only an 10.7% probability it will hike rates by 25 basis points.
Johan Grahn, head ETF market strategist at Allianz Investment Management, said a decision by the Fed "to do anything but wait and see from here on out, whether it is a decision to hike (rates) or cut, will demand unambiguous quantitative evidence to ground the decision in."
Allianz IM has $19.5 billion in assets under management.
According to the minutes of the Fed's Sept. 19-20 meeting, "a majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate."
The Fed minutes also revealed that the committee was worried that current inflation numbers "remained unacceptably high" and further evidence would be required for them to be confident that inflation was on a path to meet the Fed's 2% mandate.
