Jeffrey Sherman: The Market Needs to See Fed Action | CNBC

The Federal Reserve must prioritize interest rate hikes to demonstrate a serious commitment to combating persistent inflation, particularly as services prices remain elevated. Jeffrey Sherman, Deputy CIO of DoubleLine, argues that while a 25-basis-point increase may not deter massive corporate capital expenditures in AI, it serves as a critical signal to the bond market to contain upward pressure on long-term yields. Current market dynamics suggest that "jawboning" or verbal assurances from Fed officials are no longer sufficient; tangible action is required to stabilize the back end of the curve. Investors find the most value in the front and "belly" of the curve, specifically in five-to-seven-year maturities and agency mortgages, which offer real yields even if inflation remains near 4%. Conversely, long-duration credit remains unattractive due to ongoing fiscal challenges and volatility at the long end of the Treasury market.