Jerome Powell has the bond market exactly where he wants it: lacking conviction as to the Federal Reserve’s next steps.
It’s a scenario — evident in part through split futures positioning — that gives the Fed chair and his colleagues leeway to quickly adjust policy in the coming months as economic data unfolds, without having to fret about potentially roiling the world’s biggest fixed-income market.
Some of the world’s biggest money managers, including JPMorgan Asset Management and TCW Group, see an opportunity to boost bullish wagers with benchmark yields probing higher. It’s a camp that expects the Fed’s cumulative tightening and the roughly half-point leap since June in 10-year yields will spark a recession and make rate cuts inevitable in 2024.
“The market has been in a window where data is secondary, and it’s about waiting for September and that starts with the jobs report on Friday,” said Jack McIntyre, a portfolio manager at Brandywine Global Investment Management. At this point, the path of inflation and wages “is a bigger influence than supply on the direction of longer-dated yields.”
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