Market participants had been awaiting Powell’s speech at the central bank’s annual symposium in Jackson Hole, Wyoming, as they looked for clues on how the Fed plans to balance its inflation-fighting plans with amore dependent on economic data, hoping the central bank can avoid tipping the economy into a deep recession.
“I’ve been in ‘higher for longer’ for months,” said Kotok, who said he was in the highest cash position in his U.S. equity ETF portfolio that he’s been in. Treasury yields spiked after the speech, with the two-year note yield briefly hitting its highest level since October 2007 before falling back. There is some pricing in the market for no more than a quarter point cut by the end of 2023 - although that’s a shift from a month ago when at least two were priced in. Contracts that far out are far less liquid than near-term ones.
Sonal Desai, Chief Investment Officer of Franklin Templeton Fixed Income said she would remain risk-averse in her portfolio, maintaining low its sensitivity to interest rate changes, with short-duration bets. Those views were strengthened when, in the minutes of the July policy meeting released earlier this month, the Fed said it saw “little evidence” that inflation pressures had eased but that it recognized the risk it might tighten too much and curb economic activity.