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.
"Interest Rates / Bonds"
Time to Forget About Recession Risks?
Known to many as the ‘bond king’ – DoubleLine Capital’s founder and CEO – Jeff Gundlach – is well known for his contrarian calls. This week on CNBC he made the comment that he feels that we will look back at Sept 2024 and say “this was the start of the 2024/25 recession”. If Gundlach is correct – the recession has already hit the US economy. Therefore, this would imply the jumbo sized cut from the Fed this week is already too late – and will do very little to course correct a rapidly slowing economy (especially given the 9-12 month lag effect of monetary policy).
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…
For a full list of posts from 2017…