WisdomTree

The tricky part comes now-the pivot for rate cuts. Interestingly, it doesn't seem as if the Fed is on the same page as the money and bond markets on the timing and magnitude for potential rate cuts.

The recent plummet in UST yields has sent shockwaves through the financial markets, with investors seeking clarification on what this shift means for the economy and monetary policy.

Quantitative tightening continues unabated

The Fed's new mantra is to look at the totality of upcoming economic data releases to determine if their job is done, but even if there are no new rate hikes, rates need to remain in this restrictive territory for the foreseeable future.

The US economy has defied recession expectations, with the latest data showing a continued positive performance. Despite the cumulative 525 basis points of Federal Reserve rate hikes, the economy may still not be out of the woods, but signs are pointing to another positive performance for third-quarter real GDP.

The three-month moving average of new hiring has been consistently lower this year, a trend that is not as concerning as it might seem when compared to the pre-COVID-19 era.

As I've discussed quite a bit recently, the recent sell-off in the U.S. Treasury arena seems to underscore the point that the money and bond markets have finally 'come to the Fed' and accepted this higher-for-longer theme.

Although there's been somewhat of a seesaw pattern, the rise in the UST 10-Year yield really began back in early April.

The U.S. budget deficit, which has been a point of discussion among economists and investors, recently received a downgrade in credit rating from Fitch Ratings agency, citing expected fiscal deterioration, a high and growing general government debt burden, and erosion of governance.

The Fed's recent rate hike has pushed the target range to 5.25%-5.50%, the highest level since early 2001, leaving investors to ponder if Powell & Co. are finished with this rate hike cycle or if there is another move waiting in the wings.