— This is the script of CNBC's news report for China's CCTV on November 02, 2023.
Today the Fed once again remained unchanged and continued to keep interest rates at their highest level in 22 years after the September meeting. It's worth noting that Powell acknowledged the impact of rate hikes on the financial environment and credit conditions at this press conference.
However, he didn't reveal much information about the future trajectory of interest rates that the market is concerned about, indicating that the Fed will decide on rate policy on a meeting-by-meeting basis as they receive more data. Analysts point out that while the Fed still left open the possibility of more rate hikes, the threshold for rate hikes has become very high. Therefore, some analysts believe that Powell's statement this time is more dovish than before.
David Zervos
Jefferies chief market strategist
"I think this was about as dovish as you've seen Chair Powell since all of this began."
Powell stated that the rise in U.S. government bond yields is one of the reasons the Federal Reserve can maintain current rates. Indeed, many people believe that the recent increase in long-term bond rates has helped cool down economic growth and has helped the Fed in some ways.
One of the major focuses that has been moving the bond market overnight is the U.S. Treasury's latest debt issuance plan. The market has been concerned that the supply of U.S. government bonds exceeds demand, which could continue to push yields higher. However, on Wednesday, the U.S. Treasury announced that it will issue $112 billion in bonds in the upcoming quarterly refunding auction, which is lower than the market's expectation of $114 billion.
So combined with Powell's slightly dovish statement and the Treasury's slower pace of debt issuance, the three major U.S. stock indices rose overnight. The S&P 500 index rose by about 1%, the Dow Jones Average rose by 0.67%, and the tech-heavy Nasdaq rose by 1.64%. The 10-year treasury bond yields dipped at the same time.
But there are also market participants who have issued warnings about Powell's statement. Some investors point out that, in fact, for long-term investors, they hope the Federal Reserve maintains a hawkish stance, as this is necessary to ensure economic cooling and bring down inflation. The enthusiastic response in the overnight market is partly due to weakening economic data.
The latest data from the U.S. ISM shows that the U.S. manufacturing PMI for October dropped to 46.7 from September's 49, lower than the expected 49.2, marking a larger-than-expected contraction. This is the 12th consecutive time the index has been below the 50. Now, investors are also worried that if the economy accelerates again in the future and the Fed's control is not sufficient, inflation may rise once more.
Michael Contopoulos
Richard Bernstein
"So he got a bit lucky today in the weak economic data. What I'm fearful for, is if what happens if the economy starts to re-accelerate."
The so-called Bond King Gundlach implied the arrival of a recession. He told CNBC in an earlier interview that the time it takes for things to change is often longer than people expect. Previously, when people saw the yield curve inversion between the two-year and ten-year Treasury bonds, they started talking about an impending recession. However, at that time, it might not have been the right time for a recession, and it might take a year or even longer for the recession to occur.
Gundlach now believes that enough time has passed, and in combination with recent signs of economic downturn such as a drop in consumer confidence, he predicts that larger-scale layoffs may be on the horizon.
Jeffrey Gundlach,
Founder and CEO of DoubleLine
"So I really believe that layoffs are coming. I think we've started we've seen hours come down, we've seen hiring freezes, and now we're starting to see layoff announcements not on mass, but they're out there in financial firms and technology firms. And I believe that's going to spread. "
While Powell emphasized that the Federal Reserve is not currently considering a rate cut, the market has already begun to anticipate a potential 50 basis point rate cut by the Fed next year. Gundlach also predicts that if the economy deteriorates, the Fed's rate cut next year could be even more significant, possibly up to 200 basis points.