As of yesterday COB:
Figure 1: Ten year breakeven (blue), five year breakeven (red), in %. Source: Treasury via FRED.
Figure 2: 10yr-2yr Treasury term spread (blue, left scale), ten year TIPS yield (red, right scale), in %. Source: Treasury via FRED.
Inflation expectations (at least a proxy) are up, as expected. However, term spreads are relatively unchanged from before the election. In an earlier time, I might’ve thought this was indicating not much change in perceived growth rate of GDP, but now not so sure.
Twenty-five basis points.
Futures currently price in nearly 100% odds of another 25 bp cut in November, roughly 2/3 odds of yet another 25 in December.
The Fed typically avoids handicapping fiscal, immigration and trade future policy in making its own policy decisions, so through December, the election should have little influence.
Futures have adjusted to anticipate a somewhat higher funds rate at mid-2025 compared to one week and one month ago, consistent with expectations of increased inflation risk from Trump’s policy intentions.