The Fed’s Latest Message: What It Means for Bonds

Brew

| Mar 2025

THE LATEST FROM THE FED AND WHAT IT MEANS FOR BOND INVESTORS

The Federal Reserve’s recent meeting concluded on March 19 with a cautious outlook on the economy, citing uncertainty due to tariffs and their potential impact on inflation and growth. This uncertainty was reflected in the Fed’s revised inflation rate projection, which increased from 2.5% to 2.7% for the year, largely due to the effects of tariffs on imported goods and materials.

The Fed’s projections also indicated a potential “higher for longer” interest rate environment, with fewer policymakers expecting rate cuts in 2025 compared to the December meeting (see Exhibit 1). However, the Fed also forecasted slower GDP growth of 1.7% in 2025, down from 2.1% in December, which could argue for lower interest rates if unemployment increases.

Exhibit 1: Federal-funds rate target with evolution of projections

For bond investors, this uncertainty translates to a wider range of potential outcomes for interest rates across the yield curve. To navigate this uncertainty, we continue to advocate for an active approach within bonds, which can help position portfolios for interest rates that may stay high for longer or fall in case of slower economic growth.

By spreading bond holdings across various maturities and employing active managers, investors can benefit from potential changes in interest rates. Longer-term bonds are more sensitive to rate changes, so investing in these bonds could benefit investors if rates fall. Conversely, if inflation expectations increase and bond yields rise, shorter-term bonds would be less affected.

The Federal Reserve’s cautious outlook and uncertain economic projections suggest that bond investors should consider diversifying their portfolios across different maturities to mitigate potential risks and utilize active management to capitalize on opportunities that may arise. As always – reach out to your Financial Advisor to review your bond portfolio positioning and ensure it aligns with your long-term goals.

MARKET BACKDROP

ASSET CLASS SUMMARY
As of 03/26/2025

Asset Class	1 Month	3 Month	YTD	1 Year	3 Year	5 Year	10 Year
U.S. Stock	-3.99%	-5.29%	-2.83%	+10.55%	+8.86%	+18.21%	+12.11%
Global Ex U.S.	+0.48%	+8.16%	+8.16%	+9.86%	+6.39%	+12.05%	+5.69%
U.S. Bond	-0.40%	+2.16%	+2.06%	+4.41%	+0.62%	-0.36%	+1.44%
Global Bond	-0.23%	+2.06%	+2.04%	+2.65%	-1.50%	-1.37%	+0.50%
U.S. Real Estate	-1.82%	+2.34%	+2.87%	+12.72%	-0.38%	+9.38%	+5.57%

SECTOR SUMMARY
As of 03/26/2025

Cyclical	1 Month	3 Month	YTD	1 Year	3 Year	5 Year	10 Year
Consumer Cyclical	-5.76%	-14.74%	-10.81%	+11.63%	+4.82%	+15.71%	+11.92%
Financials	-0.73%	+2.80%	+4.48%	+23.51%	+10.44%	+20.64%	+12.22%
Materials	-1.73%	+1.95%	+3.53%	-3.32%	+1.08%	+15.81%	+8.19%
Real Estate¹	-1.98%	+2.25%	+2.80%	+12.35%	-0.64%	+9.60%	+6.54%

Sensitive	1 Month	3 Month	YTD	1 Year	3 Year	5 Year	10 Year
Comm. Services	-4.53%	-4.62%	-1.90%	+18.55%	+13.17%	+18.18%	+10.80%
Energy	+6.19%	+11.85%	+10.47%	+4.84%	+9.96%	+30.45%	+6.31%
Industrials	-0.73%	-0.18%	+1.74%	+9.51%	+10.69%	+18.74%	+11.13%
Technology	-7.90%	-13.06%	-9.83%	+9.32%	+15.17%	+24.52%	+21.08%

Defensive	1 Month	3 Month	YTD	1 Year	3 Year	5 Year	10 Year
Consumer Defensive	-3.23%	+1.29%	+2.96%	+11.29%	+6.46%	+12.47%	+8.71%
Health Care	-1.72%	+4.12%	+5.66%	+0.99%	+3.76%	+12.58%	+9.08%
Utilities	-2.21%	+2.27%	+3.08%	+26.02%	+5.43%	+10.44%	+9.54%

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Consumer Cyclical (S&P 500 Consumer Discretionary (Sector) Total Return), Financials (S&P 500 Financials (Sector) Total Return), Materials (S&P 500 Materials (Sector) Total Return), Real Estate (S&P 500 Real Estate (Sector) Total Return¹), Comm. Services (S&P 500 Communication Services (Sector) Total Return), Energy (S&P 500 Energy (Sector) Total Return), Industrials (S&P 500 Industrials (Sector) Total Return), Technology (S&P 500 Information Technology (Sector) Total Return), Consumer Defensive (S&P 500 Consumer Staples (Sector) Total Return), Health Care (S&P 500 Health Care (Sector) Total Return), Utilities (S&P 500 Utilities (Sector) Total Return).

1) The index Launch Date is Sep 19, 2016. All information for an index prior to its Launch Date is hypothetical back-tested, not actual performance, based on the index methodology in effect on the Launch Date. Back-tested performance reflects application of an index methodology and selection of index constituents with the benefit of hindsight and knowledge of factors that may have positively affected its performance, cannot account for all financial risk that may affect results and may be considered to reflect survivor/look ahead bias. Actual returns may differ significantly from, and be lower than, back-tested returns. Past performance is not an indication or guarantee of future results. This back-tested data may have been created using a “Backward Data Assumption”. For more information on “Backward Data Assumption” and back-testing in general, please see the Performance Disclosure.

This article is for informational purposes only and is not intended as individual investment advice or as a recommendation of any particular security, strategy or investment product. Investing involves risk including the potential loss of principal. SEIA is not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas. Past performance is not indicative of future results. Signature Investment Advisors, LLC (SIA) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Securities offered through Signature Estate Securities, LLC member FINRA/SIPC. Investment advisory services offered through SIA, LLC, 2121 Avenue of the Stars, Suite 1600, Los Angeles, CA 90067, (310) 712-2323. The information provided in this article is for general informational purposes only and does not constitute professional advice. Individual results may vary, and it is important to consult with a qualified professional before making any financial or legal decisions. For details on the professional designations displayed herein, including descriptions, minimum requirements, and ongoing education requirements, please visit seia.com/disclosures. SIA does not accept time-sensitive, action‐oriented messages or transaction orders, including orders to purchase or sell securities, via electronic mail.

The Fed’s Latest Message: What It Means for Bonds

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