As investors navigate the Federal Reserve’s higher-for-longer interest rate policy — and eventual rate cuts down the road — they should make sure they have their fixed-income portfolio positioned properly, according to Wells Fargo. Federal Reserve Chair Jerome Powell reiterated Tuesday that inflation is falling more slowly than the central bank expected, which means the central bank will be on hold for an extended period. The Fed last raised rates in July 2023, bringing the fed funds rate to a range of 5.25% to 5.5%. But investors were buoyed by news Wednesday that the consumer price index showed inflation eased slightly in April. Right now, Wells Fargo anticipates two rate cuts this year and just one in 2025, bringing the Fed’s target rate to a range of 4.5% to 4.75% by the end of next year, said Scott Wren, senior global market strategist at Wells Fargo Investment Institute. That means investors should look at intermediate-term fixed income to capture most, if not all, of the yield of longer-dated securities, he wrote in his weekly commentary Wednesday. “Looking at 5-year out to 30-year maturities, the yields are nearly the same. We do not believe investors are getting paid for taking on the risk of longer maturities,” Wren noted. The five-year Treasury , for instance, is yielding around 4.4% and the 30-year has a yield of about 4.5%. In addition to Treasurys, Wren likes other investment-grade fixed income such as corporate and municipal bonds. Investors can get exposure to intermediate-term bonds through mutual funds or exchange-traded funds. Here are some examples below. Investors in shorter-dated instruments should also be aware that they risk losing their currently attractive rates once it is time to reinvest, given the rate cuts expected, Wren added. For instance, investors scooping up certificates of deposit have enjoyed yields of more than 5% . “As rates decline, the return from keeping savings in CDs is unlikely to keep up with price inflation in areas like education and health care,” Wren wrote. “So, CDs are unlikely to replace other investments in a long-term portfolio.”
