With the continuous sharp rise in US bond yields, there have been increasing voices in the market calling for the Federal Reserve to slow down or even pause the pace of interest rate cuts. Chief Economist Torsten Slok of Wall Street asset management giant Apollo Management Company has also joined this group recently...

Slok stated in a report released last weekend that with the strong growth of the US economy, the possibility of Federal Reserve officials maintaining interest rates in November is increasing.

Slok believes that there are many reasons why the US economy is expected to remain strong - some bullish factors include the dovish stance of the Federal Reserve, high stock and house prices, narrowing credit spreads, and some positive factors such as "extremely open (accessible)" corporate financing in both public and private markets.

He wrote in the report that the bottom line is that economic expansion is still ongoing. He believes the US is still on a path of 'no landing' - sustained economic growth, reignited inflation.

Slok also mentioned the well-known Atlanta Fed GDPNow model, which currently forecasts that US Gross Domestic Product (GDP) is expected to grow by 3.4% in the third quarter.

Undoubtedly, Slok's aforementioned views, echoing the increasingly cautious tone within the Federal Reserve regarding rate cuts, are forming a response.

USA Federal Reserve President Schmiede expressed on Monday that given the uncertainty of how low the Federal Reserve should ultimately cut interest rates, he tends to slow down the pace of rate cuts. Dallas Federal Reserve President Logan also pointed out that due to various uncertainties in the economic environment, the Federal Reserve should maintain caution in cutting interest rates, she supports a "gradual" rate cut. Minneapolis Federal Reserve Kashkari emphasized that he currently leans towards cutting rates at a slower pace over the next few quarters.

As the economic data continues to show that the USA economy is lingering in a situation of "no landing," US bond yields have also been continuously soaring recently. Yields on US bonds of various maturities experienced a significant increase of double-digit basis points this Monday. Guosen Securities even believes that with rising inflation expectations and the Fed's shallow rate cuts, it is not ruled out that the 10-year bond yield will test the 5% level within the next six months.

In the report, Slok carefully listed the ten major tailwind factors currently present in the USA economy:

1) Dovish Fed;

2) Dovish stance of the Fed and narrowing credit spreads;

3) Extensive access to public and private financing markets;

4) The "Chip Act," "Inflation Reduction Act," "Infrastructure Act," and defense spending continue to support economic growth;

5) Consumers locking in low interest rates early, leading to lower debt servicing costs;

Locking in low interest rates reduces the cost of corporate debt repayment;

Geopolitical risks are easing;

The uncertainty of the USA presidential election is about to pass;

Expenditure on ai, datacenter, and energy transformation continues to be strong;

After the interest rate cut by the Federal Reserve in September, there are signs of a rebound in construction orders.

Slok believes that these 10 bullish factors are increasing the possibility of the Federal Reserve reversing course at the November meeting.

After Monday, the interest rate market has further reduced its forecast for the extent of interest rate cuts by the Federal Reserve within the year. The latest pricing shows that in the next two policy meetings, the Federal Reserve will cut interest rates by 39 basis points (the probability of skipping one meeting to cut rates is approaching fifty percent), while the pricing at the close of last Friday was 42 basis points.

Currently, the early November is destined to become a critical moment to trigger the year-end market trends. The employment report for October in the USA will be released on November 1st, the US presidential election will be held on November 5th, and the Federal Reserve will announce the interest rate decision on November 7th local time.

Editor/Rocky