Fed Gets Opposite Response It Wanted: Inversions Strengthen

In its policy decision today, the Fed was hoping to steepen the long end of the yield curve. The opposite happened as rates at the long end fell.

Note: The Effective Fed Funds rate will not be available until tomorrow. I estimate it to be 2.15 % down from 2.40% yesterday.

Interest Rate Spreads After the FOMC Announcement

Arrows indicate inversions.

In the following chart, I pay particular attention to the inversion between the 10-year note and the 3-month note.

Interest Rate Spreads Prior to FOMC Announcement

The spread between the 10-year note and the 3-month bill was a mere -1.3 basis points ahead of the announcement. It is now -7.1 basis points.

So much for the notion a rate cut would steepen the curve.

Yield Curve Following Decision

Following the decision the Rate Cut Odds Shrank Dramatically.

I don't buy it. This is a recessionary reaction.

Expect more cuts than are priced in.

The bond market does not believe Powell's "Mid-Cycle" Adjustment speech following the announcement and neither do I.

Mike "Mish" Shedlock