For Bond Traders and the Fed, Boring Is Beautiful
The central bank conforms to analysts’ expectations, as did a spate of crucial economic data.
Smiling on the inside.
Photographer: Al Drago/BloombergI wouldn’t be surprised if Federal Reserve Chair Jerome Powell was all smiles as he watched the financial markets move in the minutes after the central bank’s interest-rate decision on Wednesday.
Heading into this week, the bond-market consensus was that the Fed would deliver its strongest “hawkish cut” yet — acquiescing once again to futures pricing but strongly suggesting that its “mid-cycle adjustment” in policy is complete. That’s exactly what happened. The Fed cut its benchmark lending rate by a quarter-point for the third time since July, to a range of 1.5% to 1.75%, and lowered the interest rate on excess reserves by the same amount, to 1.55%. In a sign of just how ready bond traders were for this move, two-year Treasury yields barely budged from about 1.625%, the precise midpoint of the new target range, in the half hour before Powell began speaking.