Fears Shift from Inflation to Lackluster Growth
Investors are gauging the prospects for monetary policy, the global economy, and US policies following next month’s elections.
An unexpected surge in hiring and hotter-than-expected consumer inflation drove volatility in the US Treasury market this week, as investors reassessed how quickly the Federal Reserve will cut interest rates. The Labor Department’s report on Thursday said the consumer price index was up 2.4% year-over-year in September, compared with 2.5% a month earlier but higher than a consensus estimate of 2.3%. Excluding food and energy costs, core inflation ticked higher to 3.3% from 3.2%. Jobs growth last month also came in higher than expectations, as the US added 254,000 jobs after an upwardly revised gain of 159,000 in August.
Minutes from the Fed’s September meeting showed that officials debated the size of their September rate cut, with some favoring a smaller quarter-point reduction amid lingering doubts that underlying price pressures have receded. After the Fed cut rates by an outsized 50 basis points, investors saw increasing odds that policymakers would be more aggressive in loosening monetary policy to stave off a potential downturn in the labor market. Investors began scaling back those bets this week, pushing the 10-year yield above 4% for the first time in more than two months. PGIM Fixed Income’s Weekly View from the Desk examines the implications of a stronger-than-expected September jobs report, the outlook for the US labor market, and global market conditions.
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Investors are gauging the prospects for monetary policy, the global economy, and US policies following next month’s elections.
The European Central Bank announced its third rate cut of the year on Thursday, expanding a global pivot toward looser monetary policy.
As the events of this week prove all too well, geopolitical risk is always lurking.