Fed Wants a Break From Rate Cuts. Will Bond Traders Allow It?
Treasury yields are up, volatility is down and the curve isn’t inverted. Still, don’t assume all clear.
If Jerome Powell is serious about pressing pause, he will have to put on his most convincing performance to date.
Photographer: Andrew Harrer/BloombergHeading into the Federal Reserve’s interest-rate decision this week, the consensus is that the central bank will cut its lending benchmark for the third time in as many meetings. But, unlike the past two, there’s belief that Chair Jerome Powell will strongly suggest a timeout on monetary easing this time around.
Perhaps the strongest case for this conviction is the recent moves in the $16 trillion U.S. Treasury market. Two-year yields, at 1.64%, are up almost 30 basis points from earlier this month, while 10-year yields have climbed more than 40 basis points from their lows. The yield curve between those two maturities is the most positively sloped since before the Fed’s first rate cut in July — a far cry from August’s “doom and gloom.” Just since Oct. 3, fed funds futures have priced out about one-and-a-half quarter-point rate cuts by the central bank through the end of 2020. A gauge of interest-rate volatility fell last week by the most since early April.