The bond market is finally in sync with US Federal Reserve Chairman Jerome Powell’s forecast for the economy, according to “Bloomberg”.
Traders retreated from aggressive bets about the Fed Chairman’s focus on easing policy before the end of this year, reflecting significantly diminished expectations that an interest rate hike by the central bank will lead to a severe recession. Bond yields have returned to the levels seen before the panic sowed by the collapse of the Silicon Valley Bank.
Even with more rate hikes in the coming months, the US economy is likely to hold up fairly well, Unlike the European economy, which is showing signs of slowing down.
The US economy managed to avoid recession but with sticky inflation
The reports also fueled a rally in the European government bond market as investors turned to havens, with US Treasury bonds posting smaller gains.
However, the numbers highlighted the risk of a slowdown in global growth that would weigh heavily on the United States. Markets were expecting the economy to slow, even if the US narrowly avoided a recession this year.
And 10-year yields fell to a full percentage point below two-year rates, after Powell told US lawmakers this week that interest rate increases were likely, deepening a yield curve inversion usually seen as a harbinger of a recession. But this was largely due to an upward surge in short-term rates as longer-term rates were unchanged.
And while swaps traders have pushed through expected cuts into next year, they expect the Fed’s key interest rate to remain high enough to dampen growth. This means that policymakers are still expected to focus on inflation, not trying to stimulate growth.
“that interest rates could have been raised twice more this year and he did not see a drop in rates happening any time soon”, powell said.
This week, Powell will speak at several global events, which may give more insights into the policy outlook.
