Bond Market Update

Powell Speaks

• There has been litle movement in the Treasury market in the wake of Fed Chair Powell's speech on the economic outlook and monetray policy, in which he signalled the balance-sheet runoff is nearing its end, and noted there are rising job-market risks and tariff-driven price pressures 
• Below is a summary of answers provided during the Q&A:
  • If we move too quickly, may leave inflation job unfinished and have to come back later to finish it; move too slowly and there may be painful losses in the employment market—it isn't a risk-free path now
  • The breakeven rate for employment has come down a great deal
  • Looking at same non-government data to gauge labor market as most are (e.g., state unemployment claims, ADP); generally, the private data the Fed looks at is better used as a supplement to the government data, not a replacement; there are less useful private sources of data for inflation
  • It will become more challenging to make a policy assessment in the absence of both the September and October employment reports (if the shutdown goes on that long)
  • September economic activity has surprised to the upside, but we are not getting any new federal government data on that
  • Fed looking at AI but thinks it is still too early to determine if it is improving productivity in a meaningful way yet; AI could have some potentially significant implications for people in the labor force, but hard to say because we are only at the beginning of it
  • Starting to see a little bit of tightening in money market conditions
  • Consensus is great, but most important thing of all is to get it right
  • We set interest rates according to the place our economy is at domestically, not focused on foreign economic situations
  • The Fed looks at overall inflation; we don't target housing prices
• Yield check:
  • 2-yr: -4 bps to 3.48%
  • 3-yr: -4 bps to 3.49%
  • 5-yr: -4 bps to 3.61%
  • 10-yr: -2 bps to 4.03%
  • 30-yr: unch at 4.63%