2025 Fixed-income outlook

When SEI’s internal fixed-income team looks at the likely impacts as the new administration in Washington shuffles the deck on policy, municipal markets, and the economy, one thing stands out to us: inflation.

The wild card: Inflation

There are primarily two camps on inflation.

The first believes inflation will continue to fall, providing the backdrop for the Federal Reserve (Fed) to continue its rate-cutting cycle. Accordingly, investors were pleased by the recent decline in inflation, as registered by the December 2024 reading of the consumer-price index (CPI), which came in lower than forecast with a 3.2% rise year-over-year. Core CPI, which excludes more volatile food and energy prices, moderated slightly with a monthly increase of 0.2% after advancing 0.3% for four straight months. This easing from the recent highs—however slight—was welcome news to global bond markets as it opens the door to potential future interest-rate cuts (bond prices and yields are inversely related, so interest rate cuts increase the value of bondholders’ portfolios).

The other camp remains adamant that inflation will remain sticky while wreaking havoc on consumers, interest rates, and the housing market. We’re in the second camp. We believe investors and the Fed will likely have to accept higher inflation as the second Trump term begins.

Despite the recent decline in inflation, Fed officials clearly want to see more sustained progress in the inflation data before making additional rate cuts. They may have a long wait.

Important information 

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. All information as of the date indicated. This information should not be relied upon by the reader as research or investment advice and is for educational purposes only.

Statements that are not factual in nature, including opinions, projections, and estimates, assume certain economic conditions and industry developments and constitute only current opinions that are subject to change without notice.

Certain economic and market information contained herein has been obtained from published sources prepared by other parties, which in certain cases have not been updated through the date hereof. While such sources are believed to be reliable, neither SEI nor its affiliates assume any responsibility for the accuracy or completeness of such information and such information has not been independently verified by SEI.

There are risks involved with investing, including loss of principal. 

Neither SEI nor its affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.

Information in the U. S. is provided by SEI Investments Management Corporation (SIMC), a wholly owned subsidiary of SEI Investments Company (SEI). SEI Fixed Income Portfolio Management is a unit of SIMC.