Skip to main content

Choose your location

Current selection

United States
Asia Regional
New Zealand
United Kingdom


Audience for the document: Share Class: Language of the document:


Share Class: Language of the document:

Change Details

If you need to change your email address please contact us.
You are ready to start subscribing.
Get started by going to our products or insights section to follow what you're interested in.

Products Insights

GIPS® Information

T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. T. Rowe Price has been independently verified for the twenty four-year period ended June 30, 2020, by KPMG LLP. The verification report is available upon request. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. Verification does not provide assurance on the accuracy of any specific performance report.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

Other Literature

You have successfully subscribed.

Notify me by email when
regular data and commentary is available
exceptional commentary is available
new articles become available

Thank you for your continued interest

October 2021 / FIXED INCOME

The Fed Surreptitiously Turns Dovish

SEP reveals a renewed commitment to average inflation targeting.

Key Insights

  • An examination of the September FOMC meeting’s summary of economic projections reveals that the Fed has surreptitiously made a dovish turn in monetary policy.
  • The FOMC is showing renewed commitment to the average inflation targeting framework, which can result in higher yields and a steeper yield curve.
  • Stubbornly high inflation must recede to allow this new framework to proceed, which will be the focus of markets over the coming months.

The September Federal Open Market Committee (FOMC) meeting left the lasting impression on most that the conditions for tapering quantitative easing (QE) have been “all but met”1 and a reduction in purchases “may soon be warranted.”2 One could assume that, by themselves, these phrases represent a further hawkish shift by the FOMC. Moving past the taper discussion, however, closes a hawkish chapter for the Federal Reserve (Fed). The next chapter was revealed in the summary of economic projections (SEP),3 and it is overwhelmingly dovish.

SEP Indicates Dovish Policy Stance for Years

The SEP is much maligned, but it is a highly informative and valuable indicator of the FOMC reaction function. The September SEP indicated an extremely dovish reaction function. The median projections (see charts below) indicate four years of inflation overshoot and three years of below 4% unemployment, but the 2024 federal funds rate median (the 2024 “dot”) is only at 1.75%, 0.75% below the long‑run, or neutral, rate. That is incredibly dovish!

The medians or “dots” for 2023 and 2024 did move slightly higher, but in revealing the 2024 dot, the FOMC indicated it would be in a highly accommodative stance years after having achieved its objectives. Within any historical context, these projections make no sense—but perhaps this is the new, average inflation targeting framework4 in action. The SEP suggests the post‑taper period will likely be punctuated by a comeback of average inflation targeting and a re‑affirmation of the new framework. The FOMC has taken a first successful step in separating the tapering decision from the tightening decision.

SEP Reveals Dovish Long-Run Stance

SEP Reveals Dovish Long-Run Stance

As of September 22, 2021.

Source: Summary of Economic Projections. 

Data provided is for illustrative and informational purposes only. There can be no assurance that the estimates will be achieved or sustained. Actual results may vary.

*Personal consumption expenditure. 

Probabilities of Higher Yields, Steeper Curve Have Increased

What does this mean for U.S. Treasury yields? The taper negotiation, which began in May, was a major component of the summer decline in yields. The market had difficulty processing a net hawkish shift from the FOMC at a time when supply constraints were pushing inflation higher and growth lower. Getting on with the taper resolves the negotiation and has allowed yields to release from their summer range. Post‑taper, an FOMC showing renewed commitment to the average inflation targeting framework can result in a continuation of the current trend of higher yields and a steeper curve. Somewhat controversially, though, it will not likely be higher inflation but an easing of inflation that leads to higher yields.

Paradox of Lower Inflation Leading to Higher Yields

At this point in this particular cycle, lower inflation means higher yields, which is the opposite of the typical dynamic. This paradox is present purely because the source of inflation now is shortage‑induced, cost‑push price pressure. Stubbornly high inflation has taxed growth and led the FOMC into a protracted taper discussion, which raised questions about whether we were in a stagflationary5 environment. 

There are many reasons to believe that inflation will remain above 2%, but for this potentially stagflationary environment to recede and allow the FOMC to pursue average inflation targeting, supply side inflation pressure must dissipate. From an expectations standpoint, this is already happening. Expectations for inflation were laughably low earlier this year and have now adjusted much higher. Inflation is not sneaking up on anyone anymore; it has space to ease lower.

The Next Phase of Monetary Policy

The September FOMC meeting presented a surreptitiously dovish outcome, indicating that the next phase of monetary policy is a renewed commitment to the still relatively new average inflation targeting framework. This framework supports strong future economic outcomes, which can lead a renewed push higher in yields. Stubbornly high inflation must recede to allow this new framework to breathe; while early indications suggest this process has begun, that will be the focus of markets over the coming months.

What We're Watching Next

Key Risks—The following risks are materially relevant to the strategy highlighted in this material:

Debt securities could suffer an adverse change in financial condition due to a ratings downgrade or default, which may affect the value of an investment. Fixed income securities are subject to credit risk, liquidity risk, call risk, and interest rate risk. As interest rates rise, bond prices generally fall.


This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request. It is not intended for distribution to retail investors in any jurisdiction.

Previous Article


Taking the Temperature on Climate-Related Shareholder Proposals
Next Article


The Three Dynamics Shaping a Promising Outlook for Europe

October 2021 / FIXED INCOME

Rich Valuations Balance Healthy Credit in Global High Yield

Rich Valuations Balance Healthy Credit in Global High Yield

Rich Valuations Balance Healthy Credit in...

Credit analysis can expose value even amid tight credit spreads.

By Michael Connelly

Michael Connelly Portfolio Manager

You are now leaving the T. Rowe Price website

T. Rowe Price is not responsible for the content of third party websites, including any performance data contained within them. Past performance is not a reliable indicator of future performance.