A stronger dollar and a flatter yield curve were probably not what Fed policy makers had in mind... But that’s what they got.
A stronger dollar and a flatter yield curve were probably not what Federal Reserve policy makers had in mind.But that’s what they got Wednesday, along with the steepest one-day stock-market selloff since late May, after a widely expected rate cut by the Federal Reserve rattled financial markets. Chairman Jerome Powell, in a news conference, signaled that policy makers weren’t convinced of the need to embark on a full-fledged round of easing, describing the easing as a “mid-cycle adjustment.
It ended up, however, that Powell’s description of the rate cut as a mid-cycle adjustment and not necessarily the start of a lengthy series of rate cuts combined to send “a bit of a shock wave into the markets and is in direct contradiction to the market expectations of continued cuts over the remainder of the year,” said Chris Gaffney, president of world markets at TIAA Bank.Dollar rallies The ICE U.S. Dollar Index DXY, +0.37% , a measure of the currency against six major rivals, rose 0.
Yield curve flattens Ideally, a Fed easing would be expected to lead to a steeper yield curve, with yields on longer-dated Treasurys lifted by expectations for growth and inflation to get a boost from stimulus. That didn’t happen Wednesday. Guy LeBas, chief fixed income strategist at Janney, laid it out in a tweet:2) Inflation expectations/breakevens higher.3) S&P -0.
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