Bond Markets Finally Catch a Break as Fed Rate Hike Bets Retreat
The US bond market has finally caught a break after six days of declines. Treasury bonds across all maturities rallied on Wednesday, and Fed rate hike bets retreated as a result. The Federal Reserve's October meeting now sees a 74% chance of no interest rate increase, up from 70% just Monday. This change in expectations is not due to lower oil prices, which typically ease inflation concerns, but rather the softening US economy.
The Atlanta Fed's GDPNow model has reduced its third-quarter growth estimate to 3.7%, down from a range of 5-6% when tracking began. The Conference Board's consumer confidence index fell to its weakest since 2014, and the University of Michigan's sentiment gauge is near a record low. While the Institute for Supply Management's (ISM) manufacturing PMI slipped to 54.5, new orders rose, employment and order backlogs grew, and prices paid jumped.
The jobs report on Friday will be the next test of whether cooling inflation reflects a weakening economy. Economists expect 90,000 jobs added in September, down from August's 162,000, with the unemployment rate holding at 4.1%. The relief in rate hike bets may not be entirely welcome if it comes at the cost of a genuine consumer pullback.