A little change can become a big difference
Weekly Bond Commentary
Economic data has continued to surprise to the upside in October, leading to higher Treasury yields and challenging market assumptions about the timing and pace of Federal Reserve policy. Markets now see a fed funds rate of around 4.4% at year-end 2024, up from closer to 4.0% at the end of September, and more in-line with the Fed’s 4.4% projection.
The Fed indicated in its September economic projections that it saw a year-end 2025 funds rate of 3.4%, at a time when markets were looking for around 2.9%. Market expectations have now moved closer to the Fed’s 3.4% projection, after this month’s stronger data. Why does all of this matter? Because such differences lead to uncertainty and volatility as markets try to determine which estimate is correct.
Confirming progress on the Fed’s dual mandate, weekly jobless claims fell back to pre-hurricane levels, at 227,000, indicating little stress in the labor market, and purchasing managers surveys continued to show solid results, as both the manufacturing and the services components increased from September levels. Market focus is squarely on the election next week and the Fed meeting two days later.