The FED Holds Rates Steady, Keeping the USD Savings Portfolio’s YTM at 3.25%

The FED Keeps Interest Rates at Around 3.5%.

Yesterday, the Federal Reserve left interest rates unchanged within the 3.5%-3.75% range.

It is worth remembering that rates started at 0%-0.25% during the pandemic before reaching a peak of 5.25%-5.50% in the subsequent tightening cycle. They were then lowered to their current levels once inflation was brought under control, even though it remains above the long-term target of 2%.

Although Warsh had been chosen by the Trump administration with a clear mandate to cut interest rates, market expectations of a rate increase had risen in recent weeks, mainly due to inflationary pressures stemming from oil prices and certain segments of the artificial intelligence production chain.

The decision to leave rates unchanged was approved by a vote of 9 to 3: Logan, Hammack and Kashkari voted in favour of a 25-basis-point increase.

The Fed’s New Era: Less Communication and Greater Uncertainty

The decision and the brief statement did not cause much disruption in the markets.

Warsh’s press conference, however, did: although he reaffirmed his commitment to the 2% target, he provided no certainty about the Fed’s next rate move and said that the market should be allowed to run its course without interference. The increase in real bond yields already amounts to a degree of tightening in line with what is considered appropriate.

This marks a significant shift from the framework of recent years, during which the central bank consistently attempted to guide the markets and the markets paid more attention to the words of central bankers than to the actual course of the economy.

The market reaction was quite clear: short-term government bond yields fell, while long-term yields rose. They are not driven by the same macroeconomic variables. Short-term yields depend on the central bank’s policy-rate decisions and fell because the market now doubts that Warsh’s Fed wants to raise rates. Long-term yields are driven by inflation expectations and rose because the central bank may be less determined to contain price pressures than previously thought.

For now, Warsh’s chairmanship leaves many questions unanswered. The chair has chosen to communicate less with the markets, creating considerable uncertainty. It is unclear whether he is genuinely determined to contain inflation, as he stated during his first public appearances, or whether he will remain subject to political pressure pushing him towards rate cuts.

In any case, it is always preferable not to read too much into the market’s immediate reaction to a central banker’s words. In general, financial assets prefer low interest rates to high ones, so the decision not to raise them is positive. That said, this only remains the case if the central bank retains its credibility in containing inflation should it become genuinely necessary. The coming weeks will be shaped by the balance between these two factors.

The USD Savings Portfolio’s YTM Remains at 3.25%

As long as official interest rates remain at their current levels, inbestMe’s USD Savings Portfolio will maintain a variable YTM of 3.25%.*

*Important note: investors whose financial lives are primarily denominated in euros assume currency risk when investing in a US dollar portfolio.

The stability of official interest rates allows the USD Savings Portfolio to continue offering an attractive return for managing liquidity and an emergency fund in this currency. Although its primary objective is not to beat inflation over the long term, it does offer an efficient alternative to many traditional savings options.

Beyond its return, inbestMe’s USD Savings Portfolio offers several distinctive advantages:

• Return linked to the Fed: the YTM is variable and changes in line with the official interest rates set by the Federal Reserve.
• Automatic compound interest: returns accumulate continuously, with no need for renewals or to constantly search for new offers.
• Tax efficiency: taxation is deferred until the investment is redeemed.
• No fixed terms or lock-in periods: the money remains available without time commitments or penalties.
• Accessible from €5,000 or $5,000: there is no need to purchase any additional products or services.
• FOGAIN coverage and an international custodian: a structure designed to provide a high level of asset protection.

Savings Portfolios are particularly suitable for managing liquidity and an emergency fund. However, for medium- and long-term investment goals, it may be advisable to complement them with other solutions offering the potential for higher returns.

Which Portfolio Is Best Suited to Your Situation?

The Savings Portfolio is a highly efficient tool for preserving liquidity and managing an emergency fund. However, if your goal is to grow your wealth over the long term, inbestMe offers more suitable and complementary alternatives:

• Target Portfolios and Bond Portfolios (in euros and US dollars): for those who want to establish an expected return over a specific period and can accept slightly more risk.
• Index Fund Portfolios: the most suitable option for medium- and long-term horizons, with expected returns above inflation.
• Pension Plan Portfolios: specifically designed for retirement planning, combining growth potential with tax advantages.

To determine which combination of portfolios is best suited to your financial goals, discover your personalised investment plan at inbestMe. In many cases, the best solution is to combine several portfolios to simultaneously cover liquidity, savings and long-term investment needs.