Higher Bar for September Rate Cut

This podcast episode features Matthew Hornbach, Global Head of MacroStrategy, interviewing Michael Gapen, Morgan Stanley's Chief U.S. Economist, about the Federal Open Market Committee (FOMC) meeting and its implications for interest rates. Gapen analyzes the FOMC statement, noting a slightly dovish tone initially due to a revised assessment of economic growth and two dissents favoring a rate cut. However, Chair Powell's press conference introduced renewed concerns about persistent inflation and a strong labor market, raising the bar for a September rate cut. The discussion delves into the dichotomy between slowing job growth and a low unemployment rate, attributed to immigration controls. The conversation then shifts to the market's response to the FOMC meeting, highlighting the initial dovish reaction followed by a shift towards a 50/50 probability of a rate cut in September, contingent on upcoming economic data. Finally, they discuss the impact of term premiums on Treasury yields and the implications of recent Treasury supply announcements.