The bond and stock bulls had a tough September. After reiterating ad nauseum, it appears that the FOMC’s “higher for longer” message has finally gotten through. Central banks tend to be in a wait-and-see mode, assessing the various crosscurrents and determining if additional tightening of monetary policy is required. The markets were tangled up in Q3 by uncertainty over policy. Yields climbed over Q3, though much of the erosion came in September, and in large part after the FOMC’s hawkish dots.
As Q4 starts, the Fed will have to make another tough decision: raise or hold. Q3 ended on a surprising note, especially with the advanced indicator numbers which increased the Q3 GDP forecast from 3.7% to 4.8%. The Fed and particularly the hawks will be on high alert. The November 1 Fed rate hike is still on the table assuming the numbers remain firm, in line with the upward revision to Q3 GDP estimate to a 4.8% rate of growth from 3.7% before Friday’s advance data release.
Real sector data has continued to surprise on the high side, while inflation has been cooling — Can the economy continue to grow and reach the 2% goal?
But there is an important release to be aware of.