Bond market to do the Fed’s work, making further policy rate hikes redundant – Rabobank
20.10.2023, 07:05

Bond market to do the Fed’s work, making further policy rate hikes redundant – Rabobank

In a speech and Q&A at the Economic Club of New York, Fed Chairman Jerome Powell tried to keep his options open by maintaining a neutral stance. Economists at Rabobank analyze the Fed’s policy outlook.

Skipper Powell still proceeding carefully

Earlier this year, Powell said that he saw possible tightening in credit conditions following the small banking mini-crisis in March as a substitute for rate hikes. However, he is still hesitant about applying the same logic to rising treasury yields. Strong employment growth and GDP growth are likely to keep the door open to further hikes. However, with less than two weeks to go before the next meeting, today’s neutral performance does not suggest that we are going to see a hike on November 1. But that option is still open for the December meeting.

Nevertheless, we still expect the bond market to do the Fed’s work, making further policy rate hikes redundant. However, we continue to see upside risk to our baseline forecast. If economic data remain strong, sooner or later the FOMC will have to resume its hiking cycle.

 

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