Division At The Federal Reserve | Real Yield 9/26/2025

Group 1: Economic Outlook - The economy is expected to remain in good shape through the rest of this year and into 2026, with core inflation nearing the 3% level [1][2] - The Federal Reserve is likely to cut rates in the next two meetings, with potential cuts in 2025, but there is uncertainty about a string of cuts in 2026 [7][8] - Recent economic data shows personal income and spending rising more than expected, while inflation measured by PCE aligns with economists' expectations [3][4] Group 2: Federal Reserve Policy - There is a lack of consensus among Federal Reserve officials regarding the monetary policy stance, with some advocating for a shift towards a more neutral area [5][6] - Inflation remains above the 2% target, leading to questions about whether the Fed should cut rates in the near term [11][12] - The Fed's current policies are considered quite restrictive, and adjustments may be necessary as more data becomes available [6][12] Group 3: Credit Market Activity - September has seen record credit issuance in both the U.S. and Europe, with high-grade sales approaching $200 billion, a milestone achieved only four times in history [21][22] - Oracle's $18 billion bond sale is highlighted as a significant contributor to this month's volume, reflecting increased spending to meet AI demand [23][24] - Junk bond issuance also set a record at over $48 billion, marking the busiest week for junk bonds in five years [23][31] Group 4: Investment Strategies - Active management is deemed increasingly valuable in the current tight spread environment, allowing for differentiation among issuers [24][30] - Investors are encouraged to focus on credit selection, particularly in the context of potential idiosyncratic risks and broader economic conditions [35][39] - The importance of conducting thorough credit due diligence is emphasized to build a resilient portfolio capable of withstanding market fluctuations [40][41]