We have all learned over the year that you don’t fight the Fed.
It is a fairly simple rule of thumb, but is it entirely accurate advice?
The Fed is going to have to cut.
Last Friday’s job data was weak across the board — not just the obvious numbers, but everything under the hood. We are averaging around 30,000 jobs for the past three months (both the Household and Establishment surveys agree on that). The underemployment rate is moving higher, which is consistent with an economy that lost about 800,000 full-time jobs the past two months while creating about 850,000 part-time jobs.
The market is pricing under three rate cuts this year — I think that gets to three or even four and I would not be shocked to see 50 BPS cut at the next meeting.
Will the Fed and Treasury Work Together to Lower Longer-Dated Yields?
This to me is the bigger question.
I think we might be able to “fight the Fed” if all we get is rate cuts, but this administration wants longer-term yields lower. It wants mortgage yields lower, which are tied most closely to the 10-year yield. The administration is well aware that last September, after the Fed cut rates 50 BPS, long-end yields rose.
