Bonds Weaken Following Hawkish Fed Chatter
Stocks and bonds were both down following comments by Federal Reserve Governor Christopher Waller that rate cuts will be implemented slowly. Both are now in the red on a YTD basis. According to Waller, “When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully.” As opposed to previous cycles, when cuts were implemented aggressively and quickly, Waller sees a slower, more gradual pace this time around.
His comments had a chilling effect, especially as financial markets had been in a buoyant mood, looking ahead to rate cuts later this year and the possibility of a ‘soft landing’. While Waller injected a dose of hawkishness, recent economic data has also been on the weak side, adding to recession fears. Needless to say, such developments reduce the odds of a ‘soft landing’ scenario.
Currently, Fed futures markets indicate a 60% chance of a cut at the March FOMC meeting. Going into that meeting, inflation and labor market data will be major factors in this decision and market-moving events. Q4 earnings season is also starting, and it will be worth watching whether the improvement in Q3 will continue. The current consensus is for S&P 500 Q4 earnings to increase by 1.6% compared to last year.
Finsum: Stocks and bonds weakened following hawkish comments from Fed Governor Waller. Waller sees a slower pace of rate cuts during this cycle than previous ones.
- fixed income
- duration
- rate cuts
- fed
- earnings
