Well, the market got the Federal Reserve FOMC meeting wrong again.  Not in terms of the decision to leave rates unchanged at 5.5%, but in the guidance. Today’s policy statement didn’t provide the pushback against bullish views of near-term rate cuts as many expected would happen. Instead, the dot plot contains no predictions of additional hikes – the first time this has been the case since 2021 – and we have now have a greater number of Fed officials anticipating cuts next year.  To say this was a slight change in rhetoric would be a massive understatement, especially given that Chair J. Powell maintained that it was still premature to conclude that they had achieved their inflation objectives just a couple of weeks ago.

 

 

As I mentioned in our conference call last night (playback details can be found at the bottom of this commentary), we probably would have to wait until the FOMC meetings in the first quarter to see the Fed bend its guidance from no longer needing to hike, to laying out a possible framework for actual rate cuts. From that perspective, today’s meeting was a surprise and we saw it both equity and bond markets. In just less than 30 minutes after the announcement, the S&P500 bounced 0.75% and the TSX rose 0.8%.  The price of the benchmark U.S. 10yr government bond jumped by 0.9%.  In yield terms, we saw a drop of a tenth of a percent over the same period. At 4.05%, the bond has returned to levels not seen since August. Likewise, the December 2024 fed funds future contract has rallied to 95.925 – where it was on August 8^th. I believe this is implicitly pricing in a 100% probability of a full percent being chopped off the Fed’s official rate by this time next year. Whether the fundamentals (weaker employment and even lower inflation) will support this path remains to be seen.

 

On behalf of the Pyle Wealth Advisory team, have a wonderful rest of the week.   

Andrew Pyle

 

Conference call playback details
 

 

 

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