The aftermath of unorthodox
monetary policy

Paul Grillo
Co-CIO — Total Return Fixed Income

Many economists and market participants are wondering if the recent tightening of monetary conditions by the Fed has been a policy error. I believe that the policy error really was the unorthodox monetary conditions that the Fed gave us with quantitative easing 2, quantitative easing 3, and the "twist." Those moves took pressures off politicians to enact real reform. They encouraged an expansion of debt in the global system, beyond what we had in the financial global crisis. They also moved asset prices beyond fundamentals and we’re now seeing corrections to that whole environment right now. So if the Fed had not given us those unorthodox monetary conditions, we would not have a reversal of markets like we’re seeing now and we would have a smoother transition into the monetary tightening.

The Federal Reserve has given us one move of policy rates of 25 basis points. The markets in reaction to this have given us much more of a monetary tightening or a tightening of financial conditions. We’ve seen risk premium expand across many sectors of the markets; it’s now hitting corporations and entities with higher borrowing costs. The economy will soon start to feel these higher risk premiums and borrowing costs across many of these entities and you’ll see a stepdown in global economic activity. That means that the Fed will probably be unable to raise rates further in the future and may have to give us a loosening of monetary conditions as we go forward.

The views expressed represent the Managers’ assessment of the market environment as of March 2016 and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice.

Carefully consider the Funds' investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Funds' prospectuses and their summary prospectuses, which may be obtained by visiting or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.


Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt. Fixed income securities may also be subject to the risk that principal is repaid prior to maturity.

International investments entail risks not ordinarily associated with US investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations. Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.

Quantitative easing is a government monetary policy used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increased the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.

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