本周，美联储将召开今年最后一次议息会议。芝加哥商品交易所美联储观察(FedWatch)工具显示，美联储在这次会议上再次降息25个基点的概率超过97%，联邦基金利率自9月以来将下降整整一个百分点。Source: Barron's Chinese
Author: Randall W. Forsyth
As the Federal Reserve prepares to further ease monetary policy against a backdrop of relatively loose financial conditions, the fiscal policy in the USA remains highly expansive. The resulting turmoil in the Bonds market is beginning to extend to the stock market, with the Dow Jones setting a record for its longest consecutive decline in four years last week.
This week, the Federal Reserve will hold its last interest rate meeting of the year. The CME Group FedWatch tool indicates that the probability of the Federal Reserve cutting rates by another 25 basis points at this meeting exceeds 97%, marking a total decline of one percentage point in the federal funds rate since September.
In the current financial market characterized by 'irrational exuberance,' it seems somewhat strange that the Federal Reserve is looking to further ease monetary policy.
Rate cuts are fueling the financial markets. Recent data from the Federal Reserve shows that in the third quarter, net worth of American households increased by $4.8 trillion, reaching a record $168.8 trillion, a growth of 2.9%, with most of this (about $2.9 trillion) coming from the stock market's rise. Michael T. Lewis, head of economic consulting firm Free Market Inc., believes that since September,$S&P 500 Index (.SPX.US)$having increased by 5%, net worth of American households may see another significant rise in the fourth quarter.
Donald Rissmiller, an economist with Strategas, pointed out that this positive wealth effect is expected to continue supporting consumer spending, which accounts for 68% of USA's GDP. In addition to the major stock indexes nearing record highs, overall financial conditions have also become more relaxed, with the spreads between investment-grade bonds, high yield bonds, and safe-haven assets at historical lows.
John Ryding and Conrad DeQuadros, economic advisors at Brean Capital, further pointed out that this data may not prevent the Federal Reserve from lowering interest rates. In addition to the Chicago Federal Reserve Bank's National Financial Conditions Index indicating that current financial conditions are the most relaxed since July 2021, they also noted the lack of progress in inflation rates moving toward 2%, the stability of the labor market, strong hiring intentions, and increased corporate optimism.
The recent Business Roundtable CEO survey shows that corporate prospects have improved significantly, with enhanced expectations for hiring and capital expenditures. Ryding and DeQuadros noted that the recently released National Federation of Independent Business survey also showed that small business optimism has seen the largest jump in the survey's 39-year history.
While the Federal Reserve is preparing to further ease monetary policy against this backdrop, USA's fiscal policy remains highly expansionary. In the first two months of the current fiscal year, the fiscal deficit reached 624 billion dollars, with November's deficit alone reaching 367 billion dollars. The nonpartisan Committee for a Responsible Federal Budget recently noted that the U.S. government borrowed 2.1 trillion dollars in the past 12 months.
A reduction in interest rates by the Federal Reserve may be welcomed by Uncle Sam, as the USA's interest expenses have significantly risen from 508 billion dollars in the third quarter of 2020 to over 1.1 trillion dollars in the third quarter of this year. The bond market seems to have finally taken notice of this, with an increase of over 0.25 percentage points in the past week. $U.S. 30-Year Treasury Bonds Yield (US30Y.BD)$ rising to 4.62%. $iShares 20+ Year Treasury Bond ETF (TLT.US)$ Prices fell by 4.5%, equivalent to the Dow Jones Industrial Average dropping nearly 2000 points.
The restlessness in the bond market may be spreading to the stock market. The Dow Jones fell on Friday (December 13) for the seventh consecutive trading day, marking the longest consecutive decline since February 2020, with a total drop of 1.82% last week, the largest weekly decline since October.
The S&P 500 Index fell by a total of 0.64% last week, with the number of declining stocks exceeding that of advancing stocks for 10 consecutive trading days, the longest duration of this situation since October 12, 2000.$Nasdaq Composite Index (.IXIC.US)$It rose by a total of 0.34% last week.
Borrowing from the famous line of Scrooge from Dickens' classic "A Christmas Carol", some people seem to be telling the bulls: "Bah, humbug!"
Interest rate cuts are Bullish for U.S. Bonds, how to find your preferred ETF? Open the Futubull App and make good use of the themed ETF function!
Guidance: Market > ETF > Thematic ETF > Treasury Bond ETF in the USA.See over 60 ETFs!
Editor/Rocky