The past week was relatively light on economic data, and the ongoing federal government shutdown has prevented multiple reports from being released. The markets thus far have remained calm in response to the shutdown and await further news on a resolution. The lack of data has led to lower volumes and low volatility. The yield curve still prices a near-certain 25-bps cut by the Fed on October 29th, as labor market-related data has portrayed a decidedly less dynamic state, plus the shutdown may impair near-term economic conditions. From the Fed’s perspective, the shutdown comes at an inopportune time, given that the October 29th FOMC decision is “live”, and so the Fed would ideally want fresh data. The past week’s jobless claims were again unreleased, thereby leaving only private tier-2 reports in the past two weeks, which mostly corresponded with a less fluid jobs market and may improve the odds of another rate cut this month.

We are now experiencing a “higher for longer” phase in the interest-rate cycle, accompanied by an inversion in the short-to medium terms followed by a steepening (see following chart). The Fed is still in a restrictive posture, but market expectations indicate a near-term easing, however, uncertainty surrounding the potential of future heightened growth leading to elevated inflation is causing steepening at the longer-end of the curve…

Kristina Hooper discusses her outlook for the economy and markets for the remainder of 2023 and beyond. From recent challenges in the banking industry to inflation to earnings, 2023 has already faced a variety of uncertainties…