After the Fed initiated its easing cycle with a jumbo cut (50 bps) – the soft landing script kicked into full gear. Markets roared higher as they price in strong economic growth in the months and years ahead. And who knows – maybe that’s what we get? But have you noticed what we’ve seen with bonds post the Fed – especially the long end? Those yields have been rising – not falling. The closely watched benchmark US 10-year yield for example is up 17 basis points (where one basis point equals 0.01%.) That wasn’t Powell’s plan.
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Did Powell Send a Mixed Message?
Today the Fed delivered what the market expected – ushering in the start of a new easing cycle with a bang. 50 basis points. It was the kind of bang we saw in 2001, 2007 and 2020. Earlier this week, market’s were pricing in the possibility of a 50 bps as high as 70%. They were right. But despite this, the market closed lower. My guess is the market is not aligned with the so-called “dot plot”…
Don’t Bet on 50 Bps for Sept.
Do we have a ‘good, solid’ economy or one that’s at risk of a recession? Is the employment market robust or one that’s slowing sharply? Should the Fed cut 50 basis points or 25? And if 50… why? These are not easy questions to answer – as you can make the case either way (pending your lens). Regardless, the popular narrative is one favoring a soft-landing. Jay Powell echoed this sentiment with a victory lap at Jackson Hole. Former Fed Chair Janet Yellen supported this thesis over the weekend…