Everyone Seems Bullish Right Now

Follow @MrTopStep on Twitter and please share if you find our work valuable!

Our View

After Fed Chair Jerome Powell said that inflation is "moving in the right direction,” the bonds and notes took off to the upside.

Friday's stock rally was fueled by falling interest rates and the idea that the Fed’s next action will be to cut rates. While Bank of America and Deutsche Bank predict interest rate cuts in 2024 I read a very stupid story that the Fed will lower six times in 2024. 

It's important to remain focused. There is still a high possibility of a recession and the bonds were so oversold they had to pop. 

Roger Aliaga-Diaz, global head of portfolio construction at Vanguard, said the Federal Reserve will likely hesitate to cut interest rates next year for fears of a rebound in inflation. However, by keeping interest rates higher for longer, it will reduce the chances of a US economic soft landing. The world's second-largest asset manager expects a mild US recession in 2024, which will prompt the Fed to start cutting interest rates at some point in the second half of next year. 

I think Diaz is right. If the markets remain steady and we continue to see lower inflation reports, the Fed will push harder. But right now, I do not see any rate cuts coming anytime soon.