Fed Hawks Win Without Rate Hike
The Federal Reserve's two-day meeting is underway, but the markets are still unsure if there will be a rate hike. Despite President Trump's comments that Fed Chair Kevin Warsh wants to cut rates, the bond market has already done the heavy lifting for the Fed hawks.
According to the transcript of Trump's comments, he believes Warsh is 'fantastic' but has a board with 'very political' members who are hostile towards his goal. This has led some to speculate that the Fed may not raise rates tomorrow, despite the hawkish tone in recent days.
The bond market has been rising steadily since late 2022, with the 10-year yield reaching 4.60% and the 2-year yield at 4.30%. These yields have risen due to the bond market's belief that the Fed wants to be hawkish and that the labor market is stable.
Despite this, the author of the transcript believes that the Fed will not raise rates tomorrow, citing softer labor data and a recent ADP report showing five straight weeks of softer labor. The Iran conflict was also mentioned as a wild card in the equation, but oil prices have since returned to below $79.