Long-term Treasury yields finished lower for the third straight trading session on Thursday, after U.S. data reflected a softening labor market and reinforced the view that the Federal Reserve may be done with rate hikes.
What happened What drove markets Data released on Thursday showed that initial jobless claims rose by 5,000 to a seven-week high of 217,000 last week, revealing some softening in a sturdy U.S. labor market. The report helped buttress the view that U.S. economic growth may start to slow and that the Federal Reserve could be done hiking interest rates.
Fed officials voted unanimously to hold their main interest-rate target at a 22-year high of 5.25%-5.5% on Wednesday, but they also left the option of a rate hike at some point in the future on the table. Markets generally had a dovish take on the Fed’s decision — with traders focusing on the part of the central bank’s policy statement that suggested that the recent rise in Treasury yields is tightening financial conditions and is likely to weigh on the economy.
What strategists are saying “As expected, the maintained the fed-funds rate at between 5.25-5.5%, skipping hiking again since the July meeting. Once again higher long-term yields were cited as a major catalyst for the Fed to be patient,” said Marvin Loh, senior global macroeconomic strategist at Boston-based State Street.
“During the presser, Powell tried to retain optionality for another hike, but it appears to us that the bar for another hike is higher now with financial conditions tightening over the fall,” Loh wrote in an email. “The challenge for the Fed is that the data has not yet convincingly moved to a place where 2% inflation can easily become a base case, so looser financial conditions can change the Fed outlook quickly.
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