Investment chiefs, portfolio managers and strategists at AllianzGI, Allspring and BlackRock see more rate hikes from the Fed, but not necessarily at the next Federal Open Market Committee (FOMC) meeting.

The US Federal Reserve hiked interest rates at its last FOMC meeting, which was widely expected at the time but a sharp change from the rate cuts priced-in at the start of the year.

The ongoing conflict in the Middle East, and hotter-than-expected inflation data in September which showed price pressures broadening, has continued to complicate the macro-outlook.

The BlackRock Investment Institute has since cut its outlook for equities and upgraded US Treasuries, anticipating further interest rate hikes, although not the start of a prolonged tightening cycle.

“Even as we expect another hike by year-end, we don’t view recent tightening as the start of a new, sustained hiking cycle,” they said.

“Markets have partially scaled back expectations for further hikes since the September meeting, moving closer to our view.”

AllianzGI’s fixed income CIO Jenny Zeng is also starting to see value in US Treasuries given the rise in yields and expects the Fed to hold rates to “wait and see” in October.

“A pause would give policymakers time to assess the impact of the tightening in financial conditions already under way,” she said. “For investors, the more important development is that value has returned to US Treasuries.”

“For investors, however, the more interesting question is no longer simply how high rates go, but what is now priced into bond markets.”

“At today’s yields, investors are being paid decent real income to own government bonds, while also restoring some portfolio protection should equity volatility rise.”

Although Zeng expects a pause, she does not believe the tightening cycle is over, and sees another 0.25% rate hike in December, followed by a further 0.5% in the first half of 2027.

Allspring Global Investments portfolio manager Rushabh Amin also expects the Fed to hold rates steady at 4% at the next FOMC meeting, given the wide range of potential outcomes in the first half of next year.

Markets are pricing in a hike in December and three more hikes in 2027 as inflation builds, but Amin expects inflation pressures should reverse meaningfully in the first half of 2027.

He said: “Rates markets are therefore pricing an increasingly demanding combination of strong growth and sticky inflation. That is not our base case.”

“OIS (overnight index swap) implies a further three hikes next year, yet the probability of rates falling over the next 12 months has also increased.”

“To us, that captures the unusually wide distribution of outcomes and leaves the current rates path susceptible to repricing if either growth disappoints or inflation starts to ease.”