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June 4, 5:00 pm EST We’ve talked about the build up to a Fed rate cut. On that note, we heard from the Fed Chair this morning (more in a moment). As we’ve discussed, the market has been bullying the Fed for a rate cut, with a 10- year yield sitting near the lowest levels since late 2017 – almost 120 basis points lower than the levels of just six months ago. Here’s what that looks like on a chart … |
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For perspective, the last time the U.S. 10-year government bond yield (the benchmark “market determined” interest rate) was here, the Fed determined benchmark interest rate was only 1.25%. The Fed is now at 2.50%.
Is the Fed listening to the message from the interest rate market? The good news: It seems so. We’ve heard from Fed officials (yesterday and today), acknowledging that they (the Fed) have the flexibility (with low and tame inflation) to cut rates as an insurance policy against an economic slowdown. The Fed Chair himself said as much this morning in prepared remarks for his scheduled speech at a Chicago Fed conference. Here’s what he said… “I’d like first to say a word about recent developments involving trade negotiations and other matters. We do not know how or when these issues will be resolved. We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion…” So, we had a tone-deaf Fed in December, hiking rates into falling stock markets and growing global economic risks. And now it appears the Fed is hearing more clearly. With that, we get a big bounce back in stocks over the past 24-hours. And, importantly, the S&P 500 has recovered back above the 200-day moving average (the purple line). |
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And, as you can see in the chart of 10-year yields above, we’re also getting big technical support at the lows yesterday in interest rates. Both charts support the scenario of recovery/bounce.
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