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We got from j Powell in his testimony to the Senate Banking Committee today quite a bit. He said the Fed doesn't need to rush to adjust interest rates, again, signaling that officials will be patient before lowering borrowing costs. Further, I'm wondering if it changes Joy Swang's view at all. She's vice president and senior client portfolio manager at American Century Investment. She joins us here in the Bloomberg Interactive Broker's studio. Before Powell spoke, you sent some notes over
to our team. You said, we expect two to three rate cuts this year. Did Powell change your mind?
No, We were always pricing in the rate cuts towards the back end of the year, and because we know that there's a lot of uncertainty around what Trump's policies are going to be, how the market's going to react to them, what sort of counter tariffs we might incur, So we thought that the Fed has the ability to be patient. Jay Powell re emphasized that today, highlighting the strength of the US economy.
So no, so what happens between now and those rate cuts, does inflation rear It's ugly head again.
So this is something that I've actually spent a long time talking about last year, and a lot of people were thinking, you know, it's kind of like chicken little, but I think actually inflation is one of the bigger risks to the market, because people dismissed it all last year, and I was always thinking, you know, if I go to the store, prices are the same or higher, and the way consumers are affected by inflation, that's going to affect their buying power and their confidence, and that we
know drove most of US GDP growth last year. And so if the consumer starts to slow and weaken, there goes the US economy.
Yeah, it's kind of interesting, although the consumer continues to kind of surprise us by holding up here. Well, is it a case Joyce that we think that inflation or I think about the Fed's target rate that we just need to settle above that there's just stuff going on in the economy that that two percent target I think about that the fedes to get to. It's just not realistic anymore.
Yeah, that's going to be interesting how they kind of maintain that two percent or is it hires at two and a half. I think Jpal did buy himself some time by talking about an average two percent inflation target rather than sort of that hard ceiling or floor that they were targeting. So I do think he has a
little bit of time. But if you think about how hot inflation has been running the last few years, to get back to two percent, we'd actually have to see inflation lower than two percent, which we haven't seen since prior to the coronavirus pandemic.
As I mentioned, we're a waiting comments from President Trump. I wonder, Joyce, how you look at the comments from the President that we get each and every day in terms of thinking about your approach to investing, separating the signal from the noise, and what actually he is going to act on versus talking about because there is a delta there and a lot of people have pointed to that.
Yes, absolutely, And you know, going into this year, honestly, we thought that the tariffs would have been either done on day one as he mentioned earlier, or kind of pushed out, and he sort of didn't. In between where he did come out with the tariffs, but then delayed them kind of on the same day on Canada and Mexico. And so it'll be determined to see once we get to the end of that probationary period how he ends
up following up on those tariffs. But I do think as longer term investors, what we're focusing on is more of our strategic position. One thing that at American Century we've been talking more about within our investment committee this year though, is taking advantage of some of those tactical signals, so being a little more active on things like increasing credit risk when spreads widen, being a little more active on duration, and at our size, we're able to be very nimble in the market.
Well, that's what I was going to say. You guys have a lot, a lot of money under management, and I am curious. I just want to go there. How much What are you seeing in terms of flows coming in? You know, investors feeling confident about putting new money to work, and if so, how do they want it played. I'm just curious the guy that you get from them, are they willing to take on more risk? Do they want to be more cautionary?
What are you seeing Yeah, it's been interesting with fixed income because if you think back to twenty twenty two, I mean, I've spent almost twenty years in fixed income. I never thought I'd see a year where core bonds were down double digits, right, And so a lot of investors have really been scared off of being back in fixed income after twenty two and cash is still paying for in a quarter, so a lot of people are kind of sitting in money market CDs, T bills and
just rolling their cash waiting. I think if the Fed does get to the back half of this year and enacts those two or three rate cuts, depending on the strength of the economy, we could start to see a lot more demand flow go back into fixed income as that free money yield is gone on cash.
But if rates go down, forgive me, I've got it. But if rates come down, don't you think that investors are more inclined to say, ah, this is going to be good for you know, the equity market certainly, those higher valuations. That's as long as the economy doesn't fall apart and the growth demand you know metrics day, wouldn't they rather kind of take that bet?
I think so, And that's why we actually favored investment grade fixed income, so kind of that Barbell, It's like, I agree, given how tight spreads are in high yield and distressed, it doesn't make sense to try to put money to work there. Take more risk on the equity side, be more conservative in your fixed income allocation, and stay with investment grade.
Okay, Carol knows. I've just been obsessed. Thanks to Carol and also to our colleague, mand are you taking wave again? Well, kind of, I'm talking to AI, kind of obsessed with bringing into our own workflow. Are you using it at all in your day to day?
We use it a little bit right now. I think a lot of asset management companies are trying to figure out the best way to start using AI without giving away proprietary holdings or processes or things like that, so we have to be a little bit careful. I know we've been doing a lot of internal, more insular developments of AI. One thing we have done is sort of in response to the technology and AI is get higher
frequency signals. So we've been building more proprietary tools in house to help us analyze data, newsflow, things like that, and AI is a part of that.
You know, we are waiting a playback from President Trump. Just Joyce, I'm just curious how much what do you watch out of the news out of the administration in DC, And just kind of quickly for.
Us as fixed income investors, obviously, interest rates are going to be the key driver of fixed income returns this year. So what we're watching are those tariffs and the inflation story, So anything related to that is going to be top of mind for me.
Taxes.
We assume that the individual taxes will be continued and they will reach some sort of deal on the corporate tax side, so that's kind of a positive onto risk.
What is the percentage rate that you see for corporate taxes?
So I think that he has mentioned trying to cut back down to fifteen percent. I don't know if they're going to be able to get there, just given the deficit concerns. You might actually see the bare steepening of the healed curve if that happens, right, because then you have the deficit concerns coming to play. You know.
The tenure is kind of making a nice little appearance when it comes to what Scott Bessett has been talking about with regard to what the administration is paying attention to Uh, what do you see as the direction of the ten year. I'm surprised it hasn't moved more exactly.
And that's actually why we've been recommending investors stay shorter duration, because the yield curve has been uninverted from the two tens, but it's only by about twenty five basis points as of today. So in our minds, there's a lot of volatility in the tenure. Like you were saying, it could
go down before it could go to five. The two year point is really anchored to the Fed, and that's what Jerome Powell has controlled over and so that's why we see less volatility in the two year capture yield, stay short duration, don't necessarily position yourself out on the ten all.
Right, we're gonna leave it on that note. Joyce, thank you so much, Really appreciate it. Joyce Wang. She's vice president and senior client portfolio manager at American Century Investments, joining us here in our Bloomberg Interactive Brokers studio. Her focus, as you can tell, on fixed income. So great, great chat,