The Final Countdown

·21 min·2 clips

As markets count down to the first Fed rate cut in September, the hosts reveal why this week's Institutional Investor Survey closure matters.

The episode begins with hosts Ian Lyngen, Ben Jeffery, and Vail Hartman introducing the week of July 29th, noting the market's focus on the countdown to a September Fed rate cut. They mention the upcoming closure of the Institutional Investor Survey on August 2nd. The hosts review the previous week's stronger-than-expected Q2 GDP and sticky inflation, which did little to deter Treasury market moves toward lower front-end rates. They observe the re-steepening of the twos-tens yield curve, which tested cycle highs. The discussion shifts to the political climate, with the Harris vs. Trump election highlighted, but they argue congressional control matters more for fiscal stimulus and reflation risks in 2025. The September 18th FOMC meeting is identified as the likely start of a rate-cutting cycle aimed at returning policy rates toward neutral. A debate ensues on where neutral rates stand post-pandemic, considering supply chain disruptions and behavioral changes, suggesting it's a moving target. The hosts note disinflationary pressures in Q2 2024, similar to late 2023, giving the Fed flexibility. Price action in bonds shows downward pressure on rates, with two-year sectors expected to outperform, supporting a bull steepening bias. The curve steepening is detailed, with twos-tens and fives-thirties at year-to-date steeps, and 75 basis points of easing priced for 2024. Other central banks like the Bank of Canada are cutting rates, with ECB and Bank of England expected to follow. The strong two-year Treasury auction is discussed, showing ample front-end cash. FX moves include a yen rally below 155, reflecting reduced policy divergence with the Fed. The impact of the Fed's balance sheet and debt ceiling dynamics on neutral rate estimates is explored, noting how QT was offset by TGA rundown in 2023. Tips market action shows a decline in 10-year real yields, indicating restrictive conditions. The lagged impact of past tightening is considered, with markets expecting economic data to justify rate cuts. The distinction between reducing restriction and accommodation is made for Fed policy. The Treasury's August refunding announcement is previewed, with expectations of stable coupon auction sizes. The week ahead's three major events are outlined: the FOMC decision (with Powell's press conference key), Treasury borrowing estimates and refunding, and non-farm payrolls. The unemployment rate is highlighted as critical, given consumer spending disparities. The episode concludes with thanks to listeners and a reminder about the survey closure.

As heard by us

A desk-level rates brief that keeps the September cut question in focus.

Macro Horizons episode 284 tracks the market's count toward a first rate cut that still looks centered on September. Ian Lingen, Ben Jeffrey, and Vale Hartman connect a stronger-than-expected second-quarter real GDP print and some stubborn inflation to a Treasury market that…

Read the full review in PlayNext →

Why you'd press play

You want a desk-level read on why September still looks like the first cut.

Read the full recommendation in PlayNext →

Listen to the show on

Apple Podcasts Spotify

Play clips from this episode More from Macro Horizons