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Expectations of a "soft landing" surge? U.S. stocks and bonds "believe in the Fed" again This week, against the backdrop of successive hawks by Fed officials including Chairman Powell, U.S. stocks still achieved a major counter-offensive, with the three major indexes collectively closing up for three consecutive days. Analysts believe that the reason behind this is that the market believes that the possibility of a "soft landing" is increasing and is beginning to re-believe in the Fed. This week, the U.S. Treasury break-even rate (especially the short-term interest rate), which measures inflation expectations, fell sharply. The break-even rate of the 2-year U.S. Treasury bond has dropped to the lowest level since January 2021, and the five-year break-even inflation rate It has fallen from a peak of 3.76% in March to below the current 2.6%. In a report this week, Goldman Sachs chief economist Jan Hatzius argued that the decline in longer-term breakeven inflation means that serious monetary tightening is not needed to bring real inflation down to 2 percent. Markets have also sensed this, with market expectations for the Fed's policy rate remaining below 4% at its peak this week, even though swaps are pricing in a more than 80% chance of a 75 basis point rate hike at the Fed's September FOMC meeting. At the same time, long-term U.S. Treasury yields have also rebounded from levels that suggest a possible recession - the 30-year Treasury note briefly surpassed 3.51% for the first time since 2014, reducing the degree of yield curve inversion and, in effect, a recession possibility. Goldman's Jan Hatzius has been firmly in the "soft landing" camp since the Fed raised rates this year. He believes a soft landing for the U.S. economy is still possible, and sees a 33 percent chance of a mild recession starting next year, down from 50 percent in a Wall Street Journal survey of economists. In addition to Goldman Sachs, Rick Rieder, global chief investment officer of fixed income at BlackRock Inc., the world's largest asset management group, also said: "If inflation falls to the current breakeven pricing level, a soft landing is possible." For now, though, the swap market still expects the Fed to cut rates by 25 basis points by the end of 2023, and a 50 basis point cut a month ago. In addition, at the end of August, the swap market was pricing in a 50bps rate hike by the Fed as more likely, and now, I am afraid that only next Tuesday's August U.S. inflation data will be much lower than expected to reignite the 50bps rate hike. a base-point discussion. This article is from Wall Street News, welcome to download the APP to see more |