Market Outcomes of Fed’s New Course

Matthew Hornbach, Global Head of Macro Strategy, and Michael Gapen, Morgan Stanley's Chief U.S. Economist, discuss the market reaction to Chair Powell's speech at the Jackson Hole meeting. Hornbach analyzes the subsequent price action, noting a dramatic decline in short-term interest rates and a steepening yield curve, followed by a lack of sustained market movement. The conversation then shifts to the implications for Treasury yields and the U.S. dollar, considering various economic scenarios and the Federal Reserve's potential policy path, including projected rate cuts and the influence of factors beyond the Fed's control. They conclude by maintaining their existing year-end forecasts for 10-year Treasury yields, while acknowledging the need for adjustments to the quarterly path, and reaffirming their bearish outlook on the U.S. dollar.