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.
WisdomTree
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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 actions have led to a reevaluation of what it means to 'fight the Fed,' and it's crucial for investors to understand the difference between a trading opportunity and an investable rally.
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.
Chairman Powell's recent comments suggest that the Fed may not be skipping the pause and could be serious about raising the Fed Funds Rate as soon as this month's policy meeting.
The Fed was guiding the markets into thinking this was potentially the last rate hike in this cycle.
The debt ceiling saga is unfortunately still ongoing, but definitive progress has been made. According to reports, the Biden Administration and Congressional Republican negotiators have agreed to a debt ceiling/budget deal.
After last week's slew of second-tier data, it seemed as if the Treasury market had made up its mind-the economy is finally turning over and headed toward a recession sooner rather than later.