Week Ending: September 18, 2026
Timelier Return?
Federal Open Market Committee (FOMC) Core PCE Projection*
Sources: Federal Reserve, Bureau of Economic Analysis, The Princess Bride (1987), Payden Calculations
*Personal Consumption Expenditures (PCE) Price Index; Median of the 19 FOMC participants' core PCE inflation projections each quarter
“You keep using that word. I do not think it means what you think it means.” The Federal Reserve raised the target range for its policy rate by 25 basis points this week after keeping it flat for nine months. At the press conference, the Fed Chair used a certain phrase, “timelier return", five times to explain the decision. Specifically, that higher rates will encourage a “timelier return” of inflation to 2%. Interestingly, with this week’s rate hike and one more projected by December, the FOMC doesn’t expect inflation to return to 2% until…2029, which would mean inflation will spend eight years above the Fed’s target. More worrisome, how will inflation return to target with the projected continued robust growth and a solid labor market? One explanation is that 8 of 18 policymakers think further rate increases will be required in 2027. Or, as it did in the past, policymakers’ projections serve more as hope than forecast. The Fed Chair did acknowledge that “inflation risk” is still to the upside, which could require more rate increases. That’s our hunch; otherwise, it’s also possible policymakers don’t really know what that word means.
Total Returns By Asset Class
Highlights of the Week:
High Yield: High yield's year-to-date return of 1.8% may seem underwhelming, but it has been a port in the storm for fixed-income investors amid rising rates and falling bond prices. Its relatively low duration profile and higher yield levels have kept performance in positive territory this year.
Corporates: Despite $129 billion in investment-grade corporate supply this month, issuance has been lackluster, as interest rate volatility has kept issuers on the sidelines while they wait for a better entry point. However, deals have performed well this month, tightening by an average of four basis points after issuance.
Municipals: Municipal funds recorded $1.8 billion of outflows for the week ending September 16th, breaking a 21-week inflow streak and marking the largest weekly outflow since April 2025. Outflows were driven almost entirely by open-end funds at $1.8 billion, while ETFs posted modest outflows of $40 million. Despite the reversal, year-to-date inflows remain strong at $68.1 billion, the third-highest on record for the comparable period, trailing only 2021 and 2019.
Equities: The U.S. equity market finished the week slightly lower after an eventful stretch that included the Federal Reserve’s latest policy decision and heightened attention on the rapid pace of AI development. Most sectors ended negative, with utilities, financials, and industrials the weakest performers, while communications, health care, and technology led the market.
Securitized Products: Collateralized loan obligation (CLO) markets remained resilient despite a more volatile macro backdrop and heavier secondary supply, with demand staying strong across the capital structure, particularly for higher-quality Investment-Grade tranches. Primary activity also remains healthy, while underlying loan markets have held relatively firm, supporting a broadly constructive technical backdrop for CLOs.
Disclosure: This material reflects the firm’s current opinion and is subject to change without notice. Sources for the material contained herein are deemed reliable but cannot be guaranteed.
