Bond Market Is Now More About Recession than Election
Jerome Powell said the last three inflation readings have added to confidence - and the economy has performed "remarkably well." But will he cut in September? We might get clues next week.
Photographer: Tierney L. Cross/BloombergBoy, has the political landscape changed since I last wrote here. The Democrats seem to be surging based on the latest polling. And so, the burgeoning “Trump Trade” in capital markets that I dissected last week — premised on a Trump victory as inevitable — has somewhat unwound. But politics aside, the reality is that the election will take a backseat in markets for the next few months.
Cast an eye forward to next week’s Federal Reserve meeting, because what matters now is the palpable risk of recession and whether it can be overcome. Only when we are closer to Election Day will politics and the US government deficit become a driving factor again. In the meantime then, think of this as a bond story, with the one- to two-year Treasury range being most sensitive.