Financial markets rallied strongly last week after the Federal Reserve (Fed) announced a 50-basis-point rate cut Wednesday.1 The S&P 500 Index raced back into record-high territory last week while high-yield bond spreads tightened near the lowest levels in the past decade.2,3 During his post-meeting press conference, Fed Chair Powell tried his best to reassure investors that the larger cut was simply a “recalibration” of monetary policy and was in no way a sign the economy or labor markets were headed for a downturn.4
Long Treasury bonds did not share in the exuberance of other financial markets as 30-year Treasury rates moved back up to the 4% mark by week’s end.5 Treasury investors appear more aligned with Fed Governor Michelle Bowman, who has argued there is more work left to bring inflation down to target. She became the first Fed official to dissent with an interest rate decision since 2005.6 Fed policymakers may be forced to adjust the size and pace of rate cuts ahead if upward pressure on long-term Treasury yields persists.
This week’s economic calendar is highlighted by new data on the state of the housing market, including New Home Sales on Wednesday and Pending Home Sales on Thursday, followed by the Fed’s preferred inflation gauge, monthly Personal Consumption Expenditures (PCE), which will be released on Friday.7
Sources:
1Board of Governors of the Federal Reserve System – Press Release; 9/18/24
2CNBC – Dow jumps 500 points, S&P 500 closes above 5,700 for the first time a day after Fed slashes rates; 9/19/24
3Bloomberg
4Board of Governors of the Federal Reserve System – Transcript of Chair Powell’s Press Conference; 9/18/24
5CNBC – 30 Year Treasury Yield; as of 9/23/24
6Reuters – Fed Bowman's dissent is first from Fed governor since 2005; 9/18/24
7MarketWatch – U.S. Economic Calendar; as of 9/23/24
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