Are markets (^DJI, ^IXIC, ^GSPC) beginning to realize the reality of higher-for-longer interest rates and price in a prolonged rate environment, or are they in for more pain as the Federal Reserve could extend their rate hold?

PIMCO Head of Short-Term Portfolio Management Jerome Schneider breaks down how markets are forecasted to react in the long-term to revised interest rate projections.

"We're seeing the markets really digest that we are going to have higher rates for longer, and in doing so, we are finding that risk assets generally have tolerated it. Yields have moved higher in calibration, expecting this higher for longer mantra, and investors really should begin to think what that means for their portfolios longer term," Schneider tells Yahoo Finance. "And ultimately, what we're finding here is that yields are relatively attractive, really attractive, compared to where we've been in the longer-term..."

For more expert insight and the latest market action, click here to watch this full episode.

This post was written by Luke Carberry Mogan.

Video Transcript

MADISON MILLS: We are going to continue to cover stocks here moving higher after over half of the S&P 500 stocks hit their one-month lows on Tuesday. That is the most since the 2023 banking crisis. And this comes after Fed Chair Jay Powell said that it could take longer than expected to tame inflation.

Investors are now repricing the likelihood of rate cuts this year with a 58% probability of rates staying at their current levels in that July Fed meeting. That is according to the CME FedWatch tool.

For more on this, we are joined by Jerome Schneider, PIMCO head of Short-Term Portfolio Management. Thank you so much for being here with us this morning.

I know that you've mentioned that there's a lot of noise in financial markets, and that's why we're seeing so much whipsawing when it comes to the data, when it comes to Fed speak. What do you make of the reaction that we've gotten to Fed Chair Powell's commentary?

JEROME SCHNEIDER: Yeah, we've come a long way over the past few months. And rationally, investors have continued to recalibrate the data that's come into the marketplace with regards to inflation and more importantly, with regard to the more-- higher than expected growth patterns that we've witnessed.

From that perspective, we actually are getting an emphatic response from the central bank here. Both Chairman Powell, as well as vice chairman Jefferson, yesterday emphatically said that we are simply seeing inflation too high in the data that they can't ultimately move to a lower benchmark rate as a result.