Fed Holds Rates Steady While Market Tightens: Yuanta Fund Says Inflation Risks Are Contained, Focus Should Be on Corporate Earnings

The Federal Reserve announced yesterday (29) in U.S. time that it would maintain its current interest rate policy unchanged, although three officials at the meeting advocated for a rate hike, reigniting market debate over future policy direction. Yuanta Fund stated today (30) that bond yields and corporate financing costs have already risen ahead of policy rates, meaning financial conditions have effectively tightened earlier than official rates. Aside from energy price volatility, rent and wage growth have not accelerated in tandem, indicating inflation has not yet spread to core service prices. Therefore, inflation risks remain manageable. Amid short-term policy noise, investment decisions should return to corporate earnings and industry trends, seizing long-term positioning opportunities arising from market corrections.

Yuanta Fund General Manager Chang Jung-jen noted that since the Fed's June 2026 meeting, the yield on the U.S. 10-year Treasury has risen from 4.49% to 4.68%, while the 30-year Treasury yield has climbed to 5.2%. Yields on both investment-grade and non-investment-grade corporate bonds have also risen in tandem, reflecting that markets have already priced in a tighter financial environment. As market interest rates and corporate funding costs rise, some degree of economic restraint is already in place, reducing the immediate need for rate hikes. Thus, monitoring market rate movements offers more insight than focusing solely on policy rates.

Regarding the view that "to assess whether inflation will continue heating up, one must look beyond oil prices and examine core indicators such as rent and wages," Chang pointed out that Zillow's U.S. rental index annual growth has declined from a peak of over 15% in 2022 to around 2%. Meanwhile, U.S. average hourly wage growth has remained stable at approximately 3%–4% in recent years and has not accelerated alongside energy prices. This suggests that housing and wage pressures have not yet spilled over into broader service inflation, and core prices remain relatively stable. The risk of a broad-based resurgence in inflation remains limited.

According to Yuanta Fund's analysis of historical data from 1971 to present, the key factor determining subsequent U.S. stock market performance is not interest rate changes, but whether the economy enters a recession. In non-recession scenarios, even during periods of rising rates, the S&P 500 has delivered an average annual return of about 11.7%. During periods of falling or stable rates, average returns reached 18.3% and 19.7%, respectively. Historical evidence shows that corporate earnings and the business cycle are far more important than short-term interest rate fluctuations.

Chang believes the global AI investment cycle remains intact, with companies continuing to expand capital expenditures. Demand for cloud computing, high-performance computing, and semiconductors continues to grow. Recent market corrections, rather than being a setback, offer repositioning opportunities. Investors should focus on high-conviction "frontline markets," including Taiwan stocks, U.S. stock funds, and global technology funds, using disciplined investment strategies such as dollar-cost averaging to steadily accumulate positions and avoid missing long-term growth opportunities due to short-term volatility.

Chang emphasized that markets generate new interest rate, inflation, or policy headlines daily, but long-term investment returns are ultimately driven by sustained corporate earnings growth and structural industry trends. Rather than speculating on the Fed's next move, investors should take advantage of market volatility to consistently invest in long-term growth themes like AI. Disciplined investing reduces timing risk, allowing time and compounding to become powerful tools for wealth accumulation.