Episode summary
The Opportunities for Investors amid Higher-for-Longer Interest Rates
The Markets
· · 11 min · Guests: Anshul Sehgal
Summary
Anshul Sehgal argued that the latest Federal Reserve meeting reinforced a higher-for-longer rate backdrop, with the committee united around two hikes this year and a belief that policy is still accommodative. He said the market is worried the Fed is tightening into an economy where fiscal spending is not flowing to labor, which could hurt consumption even if inflation comes down faster.
On the rates side, Sehgal said the long bond has already repriced to around 5%, and he does not think the Fed needs to police the long end. He pushed back on debt-sustainability alarms, saying the bigger near-term force is a bandwagon effect in markets rather than a credible long-run solvency crisis.
For investors, Sehgal was constructive on equities but more selective. He said the equity market is more levered today, so broader stocks may not benefit evenly from AI and macro growth. His preferred expression is long compute, long Neoclouds, and long data centers, while he sees less upside asymmetry in owning the long bond above 5%.
Key takeaways
- Sehgal said the Fed’s message was that policy is still accommodative, not yet restrictive, and that another hike is likely in October or December.
- He expects the long bond to remain elevated, with nominal growth north of 5% and long-end yields generally 50 to 100 basis points below that.
- He views debt-sustainability fears as overstated in the long run and more important as a market bandwagon effect in the near term.
- Sehgal prefers long compute, Neoclouds and data centers over long bonds because he sees more upside asymmetry there.
- He warned that tighter monetary policy could eventually slow consumption and limit the upside for the broader equity complex.
Notable quotes
“the entirety of the committee coalesced around having two hikes this year. One of them we got yesterday”
“they believe they're removing a dose of accommodation. It's not that they are moving to restrictive”
“the long bond, as you know, has traded about 5% for a few weeks now. It's the highest yield the long bonds had in over two decades”
“I think long-term borrowing costs being in check is a net positive for the equity complex here”
“To me, it's being long compute, being long Neoclouds, being long data centers”
How the episode opens
This is The Markets. I'm Chris Hussey, and today is Thursday, September 17th. And we're here on the Goldman Sachs trading floor with Anshul Sehgal, who is global co-head of Fixed Income, Currencies and Commodities within our FICC and Equities business.
Anshul, thanks so much for joining us. Thanks for having me, Chris. Okay, this is the third time this year we've had you on after every Fed meeting.
We had you out in January, we had you in the April. It's not every Fed meeting, but this Fed meeting we definitely got some action finally. Walk us through it.
What do you make from the market reaction so far? Yeah, it was a real meeting. We learnt a few things, few key things from Chairman Warsh's presser.
Number one, the entirety of the committee coalesced around having two hikes this year. One of them we got yesterday, and likely another one either in October or December. Initially, the market had expected, given what the committee members had said in their speeches, that there would be more dispersion of opinion.
That was not the case. They all coalesced, at least for this year. The second thing we learnt is that they believe they're removing a dose of accommodation.
It's not that they are moving to restrictive. They believe that the current Fed's Fed funds rate is accommodative, and they are removing a dose of accommodation. He said this three times.
Both of those were new pieces of information for the market. In the market's telling, the reason the market's been so frazzled about Fed policy is it's because the market believes that the Fed was making a decision on whether to hike or not based on just the CPI print we got last week or even, say, the last couple of CPI prints, and that is not how the market basically expects the Fed to set policy.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- higher-for-longer interest rates
- fed policy
- fomc meeting
- bond yields outlook
- data center and computing sector opportunities
Watch the episode
Watch “The Opportunities for Investors amid Higher-for-Longer Interest Rates” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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