US share markets bounced and bond yields dipped following the latest remarks from a US Federal Reserve official, who suggested further hikes to the funds rate may no longer be necessary in the fight to quell inflationary pressures.
Increases to the Nasdaq (0.6 per cent), S&P 500 (0.5 per cent), and Dow Jones Index (0.4 per cent) followed the remarks of Atlanta Fed President Raphael Bostic, who said he’s confident a soft landing would be achieved after 500 bps in cumulative hikes to the funds rate since March 2022.
“I actually don’t think we need to increase rates anymore,” Mr Bostic told the American Bankers Association.
“…We have clearly moved into a restrictive place – the economy is clearly slowing down – and a lot of our policy impact has yet to come.”
These came just a day after Fed vice-chair Philip Jefferson’s dovish remarks to the National Association for Business Economics in response to a surge in 10-year US Treasury bond yields.
"We are in a sensitive period of risk management, where we have to balance the risk of not having tightened enough, against the risk of policy being too restrictive,” he said.
“I will remain cognisant of the tightening in financial conditions through higher bond yields and will keep that in mind as I assess the future path of policy.”
However, bond yields have since moderated amid concerns over escalating geopolitical tensions in the Middle East.
The latest US labour market indicators also point to continued tightness in the jobs market despite an extended period of contractionary monetary policy settings.
The US Bureau of Labor Statistics recently reported a surprise upswing in payroll employment, up 336,000 in September, well above market expectations (170,000).
The improvement was driven by jobs boosts in leisure and hospitality; government; health care; professional, scientific, and technical services; and social assistance.
But despite the payroll boost, the unemployment rate held steady at 3.8 per cent.
“There are always doubts about data quality when you get such wide discrepancies between different data sources, but payrolls is the number the market puts most emphasis on and we have to acknowledge that such strength keeps alive the prospect of another rate rise and fits with the Fed’s higher for longer narrative surrounding the policy rate,” James Knightley, chief international economist at ING Economics, said following the release of the payroll jobs numbers.
The Federal Reserve is expected to pay close attention to the upcoming consumer price index (CPI) and the product price index (PPI) points.
The next Federal Open Market Committee (FOMC) is scheduled for 31 October.
When reflecting on the broader economic outlook for the United States, Mr Bostic said he does not expect the economy to slip into recession.
“I have the economy slowing down but not moving into recessionary mode, because there was a lot of momentum that was present and I think that is going to be able to sop-up a lot of our slowdown," he said.
This is supported by the latest analysis from the International Monetary Fund (IMF), which said it anticipates US GDP growth of 2.1 per cent in 2023 and 1.5 per cent in 2024.
The global GDP is tipped to grow 3 per cent this year and 2.9 per cent in 2024 (revised down from 3 per cent).