This crisis has unfolded by design, leading to significant shifts in market expectations and Fed policy.
In a recent development, the 10-Year Note Yield has surged to 4.45%, a level not seen since November 2007. Markets have adjusted rapidly to this change, with rate cuts no longer being priced in until September 2024. Just three months ago, the expectation was for four rate cuts by the end of 2023, but now the possibility of another rate hike by December is back on the table, and rate cuts are not expected for a year.
This shift indicates that the Fed is more hawkish than anticipated. They’ve held the benchmark rate within the 5.25-5.5% target range, with 12 officials foreseeing one more hike this year and 7 expecting it to remain on hold. Median rate forecasts for 2023 and 2024 have also changed, indicating a more aggressive stance.
The 10-year yields are hitting 16-year highs, potentially signaling concerns about inflation. Historically, the Fed’s policies have influenced markets mainly through their statements. However, over the past two years, a growing number of market participants have become skeptical of the Fed’s intentions, leading to a lack of confidence in their guidance. To bring inflation back under control, the Fed must regain the confidence of the markets, which is now a significant challenge.
BREAKING: 10-Year Note Yield rises to 4.45% for the first time since November 2007.
Markets are now no longer pricing in any rate cuts until September 2024.
Just three months ago, 4 rate cuts were expected by the end of 2023.
Now another rate hike is back on the table by… pic.twitter.com/AYUiFC8jLP
— The Kobeissi Letter (@KobeissiLetter) September 21, 2023
Same institution that brought us “no tech bubble” in 2000, “subprime contained” in 2007, “green shoots” in 2009, “funds rate through neutral” in 2018, “transitory” in 2021, is now peddling “higher for longer” in 2023. Fade the Fed.
— David Rosenberg (@EconguyRosie) September 20, 2023
#Fed more hawkish than anticipated: Holds benchmark rate in 5.25-5.5% target range. 12 Officials see one more hike this year, 7 see on hold. Fed ‘23 median rate forecast stays at 5.6%; ‘24 rises to 5.1%. pic.twitter.com/HS18OypF1t
— Holger Zschaepitz (@Schuldensuehner) September 20, 2023
The Federal Reserve has engineered the greatest financial crisis in 100 years… by design. t.co/t3sXUUF4M8
— Financelot (@FinanceLancelot) September 21, 2023
Another day, another 16-year high in 10-year yields.
Feels like maybe, just maybe bonds are sending a message of concern about inflation.
Will the rest of the market pay attention?
— Markets & Mayhem 🤖 (@Mayhem4Markets) September 21, 2023
Historically, much of Fed policy works simply through what the Fed says.
What does this mean?
If the Fed says they will be raising rates, markets adjust to reflect higher rates BEFORE they actually raise them.
However, over the last 2 years the number of market participants…
— The Kobeissi Letter (@KobeissiLetter) September 20, 2023
The 2-year Treasury yield closed yesterday at 5.120%, the highest level since 2006.
— unusual_whales (@unusual_whales) September 21, 2023