Fynsa
In prepared remarks at an event at the Economic Club of New York (SEE)), Fed Chairman Jerome Powell emphasized that recent data "show continued progress" toward the Fed's dual-mandate goals of maximum employment and price stability, and stressed that the FOMC "is proceeding carefully" in light of "uncertainties and risks, and how far we have come" in the tightening cycle.
On the economic front, the most notable change in Powell's speech is when he references that. "indicators of wage growth show a gradual decline toward levels that would be consistent with 2% inflation over time."
Regarding market conditions, in the Q&A session following the speech, Powell interpreted the recent rise in long-term yields as being primarily due to the term premium (diagnosis shared by us: SEE MORE) rather than a change in expectations about the path of short-term interest rates. As such, it represents a pure tightening of financial conditions not driven by an improved economic outlook. Because of this, "at the margin," the Fed may need to do less to tighten financial conditions (see charts).
Going forward, while Powell "kept alive" the option of raising rates at subsequent meetings in the face of additional evidence of persistently above-trend growth, or that labor market tightness is no longer easing, given that there will be little significant "additional evidence" between now and the Nov. 1 meeting, it appears that rates will remain unchanged after the next meeting, it appears that rates will remain unchanged after the next meeting.
This is also supported by recent comments not only from Chairman Powell, but also from other FOMC participants, including Vice Chairman Jefferson and Presidents Williams, Barkin, Harker, Bostic, Daly and Goolsbee, which have suggested that the FOMC was likely to leave the federal funds rate unchanged at its November meeting, and that the federal funds rate had likely peaked in this tightening cycle.
Finally, with U.S. 10-year treasury yields hovering around 5%, we reaffirm our conviction that current interest rate levels are attractive in historical terms, we reaffirm our conviction that current interest rate levels are attractive by historical standards and recommend considering a gradual move out of cash into longer maturities and corporate bonds (SEE)
