Beyond the Fed’s hawkish “pause”: three macro elements to consider*

The U.S. Federal Reserve kept rates steady at its June meeting. But looking deeper, there are implications for investors.

After aggressively raising rates by a cumulative 500 basis points (bps) since March of last year, the U.S. Federal Reserve (Fed) left its policy rate unchanged at 5.25% at its June meeting. The accompanying statement mentions that holding the target rate steady this month will allow the Federal Open Market Committee (FOMC) to gather “more information” to determine if additional monetary tightening is needed. However, FOMC members also signaled their intention to raise rates two additional times by the end of the year. All in all, the underlying message from this decision can basically be summarized as: “better, but higher and longer.”...

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A rise in interest rates typically causes bond prices to fall. The longer the average maturity of the bonds held by a fund, the more sensitive a fund is likely to be to interest-rate changes. The yield earned by a fund will vary with changes in interest rates.

Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a fund’s investments.

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