There’s talk of a Fed pause. Who could’ve seen that coming?

I don’t relish “I told you so” moments but… well, I told you so.

There were plenty of good arguments for the 50bps rate cut Jerome Powell delivered last month, particularly when you consider the information available to the FOMC at the time. But if there were any good arguments on September 18 for delivering an additional 50bps of cuts by year-end, there were fewer such arguments on October 4, which is to say after the September jobs report suggested US labor market deceleration fears might’ve been overblown.

Regular readers will attest that I argued loudly for September’s 50bps cut, but just as loudly for a pause in November in light of subsequent data releases, which were uniformly firm.

The figure shows Fed cut pricing for 2024. Remember: We’re 50bps into it already. So, inside of 100 total basis points (where pricing is now) means a cut at both remaining meetings is no longer priced as a certainty. You can see the attendant selloff in twos.

Now, Fed officials are starting to sound non-committal about November’s assumed cut, and strategists are too. Take Torsten Slok, who last week said it’s “increasing[ly] likel[y] that the Fed will have to reverse course at its November meeting” in light of an economy which, at least at the aggregate level, simply doesn’t need rate cuts. The Atlanta Fed’s GDPNow tracker tips 3.4% for next week’s advance read on Q3 GDP, for example.

In “Say Less. Dear God, Say Less,” I noted that 10-year US yields were up very sharply since September’s Fed meeting. A couple of hours later, Bloomberg ran a hyperbolic, albeit highly effective, headline which loudly declared “Treasurys Plunge Like It’s 1995.” The point, obviously, was to draw a parallel with the last (and, on most accounts, the only) soft landing. The figure below’s just the change in twos in the 23 days following the first cut.

34bps this time and 34bps during the only historical soft landing. Seems fortuitous, right? Here’s hoping.

Not that this needs repeating, but just in case: Next week’s going to be a real nail-biter. The Fed’ll be in the blackout and the macro docket is absolutely jam-packed. If the October jobs report looks anything like September’s release, the November FOMC meeting’s probably a pause. Everyone would be compelled to rethink the whole narrative just days before an election with the potential to shift that same narrative all over again. If, on the other hand, the October jobs report comes in soft, we’re back to talking about a slowdown and back to pricing rate cuts.

I suppose the most bearish outcome for bonds would be a week of warm macro data followed by a Trump win with a pliant Congress. The most bullish outcome for bonds would be the opposite: Cool data and President Harris with a split legislature.