It isn’t elegant, graceful, or refined. And it apparently contradicts the past 10 days’ employment and inflation data, which would seem to support an increase in the federal-funds rate in November or December. But Federal Reserve officials have gone out of their way to talk down the likelihood of another hike, largely because the bond market has been doing the central bank’s work for it.
The S&P 500 index ended the week up 0.45%, the Dow Jones Industrial Average added 0.79%, and the Nasdaq Composite slipped 0.18%. The 10-year yield fell 0.16 point, to 4.63%. “I will remain cognizant of the tightening in financial conditions through higher bond yields and will keep that in mind as I assess the future path of policy,” Fed Vice Chair Philip Jefferson said on Monday, while Dallas Fed President Lorie Logan echoed that sentiment in separate remarks that same day. Atlanta Fed President Raphael Bostic cut straight to the point on Tuesday morning. “I don’t think we need to increase rates anymore,” he said. It doesn’t get any clearer than that.
The market, too, is coming around to that point of view. Interest-rate futures pricing now implies a less than one-in-three chance of an additional fed-funds increase this year, according to the CME FedWatch Tool, down from roughly 50/50 odds a few weeks ago. But that doesn’t mean they’ll come down quickly, either, even if the market is pricing in cuts of 0.75 percentage point next year. “The higher-for-longer idea is real,” Porcelli says.
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