Long-term Treasuries have been struggling to stop the severe bleeding for two solid months. That was before Powell this week decided to fan the flames a little more. Saying that inflation is still well above target is only speaking the truth of the situation, but it’s unclear why he’s still threatening more rate hikes at this point. The rate hikes of the past 6-12 months are still making their way into the economy. Soaring Treasury yields are already effectively doing the work for the central bank. Even though it’s ticked up recently, inflation is still below 4%. Does the Fed really need to tighten further right now? The market seems to think no and that’s probably a reason why the odds of another rate hike actually went down in the futures market after the speech. At this point, Powell seems much more likely to do harm than good.
This coming week looks like it has the potential to get really ugly and there’s no shortage of catalysts. The conflict in the Middle East looks like it’s ready to escalate and that’s already sent crude oil and gold prices much higher. The mess surrounding the Speaker of the House looks no closer to being resolved today than it was last week. That has investors fearing the possibility of another government shutdown on the November 17th deadline date. With interest expense already soaring, any disruption to normal operations should be considered a risk and is probably contributing to the rise in Treasury yields, at least to some degree. While GDP growth, the labor market and consumer sales activity still look relatively healthy, intermarket behaviors suggest that investors are turning more cautious here and focusing on path.
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