Higher for longer
Markets are realising that rate cuts aren't coming anytime soon and the narrow path to a soft landing may be getting even narrower.
For months, the Federal Reserve has delivered consistent messaging that interest rates will remain higher for longer due to persistent strength in the United States economy.
Financial markets — as is their forward-looking, prognosticating bent — had instead made bets to the contrary, preferring to focus on the potential for rate cuts next year.
The penny finally dropped on markets this week. Unexpected strength in the US labour market and higher oil prices have fuelled speculation that the Fed, far from looking at relaxing monetary policy, is in fact not yet done with raising interest rates.
That prompted an overnight bond rout that pushed treasury yields to 16-year highs, which in turn helped wipe out the remainder of this year’s gains on the Dow Jones Industrial Average.
