Investors Seek Clues on Pace of Easing with Central Banks on Divergent Paths InvestorsSeekCluesonPaceofEasingwithCentralBanksonDivergentPaths

Market speculation over how much the Federal Reserve would cut interest rates turned into curiosity over the pace of easing going forward, as central banks across the globe find themselves at different junctures in their path to a neutral policy stance. In a slate of speeches this week, Fed officials hinted at a cautious approach after making a larger-than-usual cut last week. Atlanta Fed President Raphael Bostic warned on Monday against a “mad dash” to reduce borrowing costs, adding that officials have a “robust” range of views about the path ahead. Fed Governor Michelle Bowman, the lone dissenting vote in last week’s decision, said on Tuesday upward pressure on housing prices and potential supply-chain disruptions risk driving up inflation. “The US economy remains strong and core inflation remains uncomfortably above our 2% target,” said Bowman, who preferred a quarter-point cut to begin the Fed’s new easing cycle. Despite starting its own rate-cut cycle in the summer, the Bank of England could lower rates at a slower pace than the Fed, as it looks for more evidence of cooling inflation amid strong wage growth.

Global economies are also on divergent paths, illustrated this week by news that China was rolling out a batch of stimulus measures aimed at jumpstarting growth. In the US, the final reading from the Bureau of Economic Analysis confirmed that economic growth set an annualized pace of 3% in the second quarter. The Atlanta Fed’s GDPNow model estimated that third-quarter growth was on track to hit 2.9%—even as the Conference Board’s consumer confidence index registered its largest one-month decline in three years amid downbeat views of the labor market and current business conditions. In its Weekly View from the Desk, PGIM Fixed Income examines the market implications of monetary policy and economic trends.