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Well, US bonds have a very clear initial verdict on the Federal Reserve’s statement today: dovish.
Treasuries rallied sharply after the statement and the release of the Fed’s latest economic projections, with the biggest slide in yields among shorter-dated coupon-bearing securities — 2-year, 3-year and 5-year.
That comes even after Wednesday’s CPI report was in-line with economist forecasts (or even slightly higher).
Still, officials’ median PCE inflation forecast for this year also fell pretty sharply at the latest meeting; it’s now at 2.8 per cent, down from September’s 3.3-per-cent forecast.
And, of course, there are the dots. September’s are on the left, and the dots released today are on the right:
The median official’s interest-rate forecast for next year is 4.6 per cent, implying about three 25-bp cuts from current levels, compared to 5.1 per cent in September.
Early in the presser, Fed Chair Jay Powell seemed less eager to walk back the market’s dovish views.
“We are likely at or near the peak rate for this cycle,” he said.
And when it comes to rate cuts?
“We are seeing strong growth that appears to be moderating, we’re seeing a labour market that’s coming back into balance . . . and we’re seeing inflation making real progress,” he said, though “no one is declaring victory, and we can’t be guaranteed of this progress.”
The timing of any coming rate cuts “is clearly a topic of discussion in the world and a topic of discussion for us at our meeting today,” he added.
We’ll stay tuned for more details.
