10 Year wants 5%...at a minimum

4 Dis 2022

Do you really need to ask if interest rates have topped out?

Head & Shoulders patterns at tops and bottoms are generally spot on...this Inverse H&S pattern occurred at a bottom, clearly broke out from the neckline and just wants 5%...at a minimum.

"Don't fight the Fed"
The Fed is not going to pivot to the downside anytime soon...why would they? What makes anyone think this is on the horizon?
Here are the 3 things Powell stated would need to happen for a pause (not a pivot ) at Jackson Hole:
1. Lower Growth
2. Softening Labor Market
3. Inflation on pace to 2%.

2022 Q2 vs. Q3 GDP came in positive and much stronger than expected, Jobs reports remain hot and inflation isn't anywhere near 2%. So at this point, we can't even check off any boxes for a possible pause in rate hikes let alone a pivot . In addition, Powell hasn't really wavered in his statements since Covid, he's been pretty straightforward, so why would he all of a sudden change his behavior?

4 Dis 2022

Nota

10 year-Doubling the range...Interest rate increases are not "transitory”

29 Okt 2023

Nota

10 Months later and the 10 year finally hits 5%!

Now lets go back to Powell's statements at Jackson Hole:
Powell stated the following would need to happen for a pause (not a pivot):
1. Lower Growth
2. Softening Labor Market
3. Inflation on pace to 2%.

While the FED has paused rates hikes (while maintaining it might not be a complete pause) none of the above have been met at this point. We just had a good GDP print, employment is still strong & inflation has come down but it has accelerated in the last couple of months. I guess maintaining the stance that rate hikes are still on the table allows him to save face? At the end of the day, the bond market is doing his job with the recent acceleration in rates on the long end of the curve.