Who is Correct?
The current market environment presents a unique challenge for fixed income investors. The secular bull market has been one of the most protracted in history, with low interest rates extending from the 2008 financial crisis to the present. Equity markets have rallied to historically high levels. The economy has recovered gradually since the Great Recession providing justification for rising rates. However, yields have remained at historically low levels. Federal Open Market Committee (FOMC) policy, the greatest determinant of short-term interest rates, has become more transparent under Chairman Ben Bernanke and subsequently Chairwoman Janet Yellen. However, there is a current disconnect in the market between interest rate levels and FOMC projections. What is causing the dichotomy, and what are the implications for fixed income investors?