Feb 15th I asked this question: “Ready for a Growth Scare?” Markets were yet to correct at the time… however fast forward ~5 weeks and the growth scare has arrived. Now investors are taking notice. The Fed warned growth is likely to slow this week – where Chair Powell said economists outside of the central bank have generally moved up their estimated chance of a recession. The Fed downgraded its economic growth outlook while raising its inflation projection. They see the U.S. economy growing at a 1.7% pace this year, down 0.4 percentage points from what it forecast in December.
Inflation
Actionable market insights delivered to your inbox weekly
Bessent Wants a Lower 10-Yr Yield… But How?
The new US Treasury Secretary – Scott Bessent – is focused on the right goal. He wants a lower US 10-year yield. The former Hedge Fund manager knows how important a lower US 10-year treasury is to the growth of the economy (and the government). His direct language reflects a reality – as most people don’t borrow at the short end (i.e., the rate set by the Fed)
The Market’s Addiction
If you needed reminding the market remains closely tethered to monetary policy – we received it this week. Stocks surged on the back of two things: (i) CPI coming in slightly better than expectations; and (ii) the prospect of the Fed having more room to ease rates. Bond yields dropped and stocks jumped. There’s nothing quite like the sniff of cheaper money to get the animal spirits moving. However, it’s still far too premature to jump to conclusions.