Bonds Lose Ground Despite Larger Fed Rate Cut

Bonds Lose Ground Despite Larger Fed Rate Cut

The Fed was either going to cut 0.50% or 0.25% today.  It opted for the larger cut but the bond market LOST ground.  For those who hadn't tuned in over the past few weeks to learn why such things can happen, there were two potential reasons: the dot plot and Powell's press conference.  The dot plot was inoffensive and actually left bonds in slightly better shape.  It was Powell's press conference that caused the reversal this time.  He didn't show visible concern on the labor market.  He was clear to specify that 50bp isn't the pace of cuts until further notice.  He stayed well clear of declaring victory on inflation.  And he reiterated that the "neutral rate" is probably "significantly higher" than before the pandemic.  Combine all that with a bond market that had been in a relatively aggressive position heading into Fed Day and the moderately weaker closing levels are about as boring and logical a result as anyone could imagine.