Bond traders unconvinced the Fed will only cut once
Bond traders loaded back up on interest-rate-cut bets — and even the pushback coming out of the Federal Reserve did little to shake their conviction.
Policymakers kept rates steady at a more than two-decade high and dialed back their forecasts to pencil in just one quarter-point rate cut by year end, about half of what markets are pricing in. At his post-meeting press conference Wednesday, Jerome Powell stuck to the message that the central bank is in no rush to shift gears, waiting for more evidence that its fight against inflation is moving in the right direction.
But the morning’s consumer price index report had already delivered what traders were waiting for, showing a key measure of inflation cooled to the slowest pace in more than three years. Two-yield Treasury yields tumbled as much as 17 basis points to as low as 4.67% and the S&P 500 Index rallied as much as 1.3%.
The markets largely held their gains after the Fed meeting, downplaying Powell’s hawkish talk as a signal that the central bank doesn’t want to be boxed in.
“Powell clearly wants to retain optionality,” said Michael de Pass, global head of rates trading at Citadel Securities. “Powell wanted to come across more even handed and make sure he didn’t fan the flames following the softer-than -expected inflation print.”
The markets, of course, have jumped the gun repeatedly in recent years, anticipating that a Fed pivot was imminent only to be whipsawed by another painful reset when the central bank held its course.
Policymakers have made it clear, though, that they’re ready to start dialing back rates once they’re confident that inflation is comfortably receding back to their 2% target.
Prices are still rising faster than that, which Powell said
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