Promises Kept? Markets Hope So

The Fed has spent the last six weeks telegraphing a rate cut to occur at the July 30-31 meeting. The markets have priced in the expected cut; the “Powell put” is in effect. The rationale is the usual: prevent slowing growth and stimulate inflation closer to the 2.0% target. The 10 year treasury has traded in the 2.00% range since Powell and other Fed officials described the cut as “insurance” against further slowdowns and trade uncertainty. The problem with the Fed’s timing is that the latest economic data indicates strong growth (manufacturing output, retail sales, employment) and signs of inflation (CPI, PPI). It’s part of the contrarian news cycle: A vote of confidence by the Fed (no rate cut) will create market volatility. Debt Ceiling Update: The news last week that the Treasury will reach its debt limit in early September without an increase has created the usual Washington drama with very little time to spare (the House of Representatives recesses on July 26). This has started to disrupt the treasury market with a selloff in short term treasury notes (3-6 months), spiking those yields and creating some inversion. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners