U.S. Bond Market Yield Inverts, Fed Minutes Worry Traders

federal reserveTraders got some interesting views of the market on Wednesday afternoon EST; first, the Federal Reserve released minutes of its July meeting, showing that the decision to cut interest rates last month was fraught with conflict and that the Fed does not have a clear path to avert a recession. Then, shortly after the minutes were released, the curve between 2-year and 10-year Treasury notes flattened – and then inverted for the second time in two weeks.

Wall Street indexes managed to end the day higher on Wednesday despite growing concerns about a recession brewing in the U.S. The S&P 500 closed up 0.82 percent while the NASDAQ and the Dow Jones Industrial Average posted similar gains, up 0.90 percent and 0.93 percent respectively.

The dollar started Thursday’s Asian session trading near Wednesday’s highs but slipped slightly by mid-morning. The greenback gained 0.36 percent against the yen on Wednesday, it’s biggest daily gain since August 13. It was trading slightly lower as of 12 p.m. HK/SIN, down 0.16 percent to 106.44. The greenback also eased against the euro, with the common currency gaining 0.02 percent to trade at $1.1085 at midday.

Takeaway Messages

The Federal Reserve may have been divided (8-2) about whether to cut interest rates last month, but one thing its members did agree on was the decision not to signal additional rate cuts for the future, but to leave both analysts and President Trump wondering. President Trump has long criticized the Fed for not cutting interest rates sufficiently and has repeatedly demanded that the Fed implement a more aggressive policy.

Yet Trump’s demands put the Fed in a difficult position. As an independent body that has long struggled not to give into presidential demands, the Fed will certainly be construed as ‘weak’ if it is seen as bowing to Trump’s ‘request’. But of course, if the Fed doesn’t take an aggressive policy, they risk ire from the volatile president as well as potentially damaging the economy further. What’s a central bank to do?

According to MarketWatch, Wall Street is pricing in a near-certain interest rate cut after its September meeting. But the extent of the cut and the sentiment attached to it remains shrouded in mystery despite today’s minutes release.

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