Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Fedspeak Monitor: More pushback on lower Fed pricing, FOMC minutes will be key
Charu Chanana
Chief Investment Strategist
Summary: The holiday-shortened week is likely to see a continuation of Fed speakers pushing back on expectations of a Fed pivot. There is some risk that the message from the FOMC minutes, due on Wednesday, on the downshift in the rate hike trajectory could be interpreted in a dovish manner. But Fed members will likely continue to bring the focus on strength of the labor market and terminal rate pricing.
Last week, we saw the Fed members pushing back generally against the oversized reaction of the markets to the softer US CPI print and the resulting lower pricing of the terminal rate. This helped the US dollar to make a mild recovery, and the trend could likely continue as easing of financial conditions over the last two weeks makes Fed members more alert. We have updated our Fedspeak Monitor with the latest commentaries from the key Fed members, as these remain key to monitor before we start to expect a Fed pivot.
While the usual hawk Bullard continued to bring the focus on higher terminal rate pricing, Collins also added to the hawkish rhetoric by keeping a 75bps rate hike on the table for December. Waller, however, started the week on a hawkish note but was later quoted saying he is “more comfortable” with a 50bps rate hike this month. The uber-dovish Brainard however was more balanced as she took comfort from the recent inflation data, but still hinted that duration of peak hold would depend on flow of data.
This week brings the FOMC minutes from the November 2 meeting, which may be at a risk of being interpreted dovish as the message on downshifting to a smaller pace of rate hikes will likely be key. Chair Powell managed to deliver that with a hawkish press conference, but just a read of the minutes may not be sufficient for that tone to strike again. We have more Fed speakers coming on the wires as well this week, including Daly, Mester, George and then Bullard again just before the week is shortened by the Thanksgiving holiday.
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