Despite the street's claims that inflation is now tamed, yields across all maturities are saying otherwise, including the all-important 2YY which is where the Fed Funds Rate needs to be in front of:
With the EFFR at 4.58% and the 2YY at 4.37, a 25 bps cut would put the Fed behind the curve again which is not something that the Fed wants to do unless of course they anticipate a major slowdown on the horizon.
Bond traders are just now figuring this out -
There have been instances in the past where the 2YY has rallied after putting in a prior low post Fed pivot, most of which came during a period of broad military peace, free-trade globalism, and a tech boom which contributed to secular disinflationary trends -
But with war talk heating up, tariffs, protectionism, and populist leaders, can this trend continue, or is the recent bid in the 2YY a repeat of the late 70's and the Arthur Burns mistake? Bond holders and those betting on significant deflation are hoping that this cycle here does not repeat -
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