A post mortem analysis of the FED meeting
Good morning to all, this post will be a brief analysis of last FED meeting, and where we are in the valuation space of rates market. The piece is totally free for all readers.
The first jumbo cut of the FED (Sept 24) signaled the Fed's hawkish turn, with the Bloomberg model (FED sentiment natural language rebounding from an area of neutrality). Below the Bloomberg index (BENLPFED Index) vs the FED rate.
FED yesterday decided to cut by 25bp as expected and that, despite rates remain restrictive, further adjustments need an increase of disinflation to go further. SEP (Economic projections) increased both GDP estimates and inflation (core PCE).
FOMC modified their estimates for DOTS, with only 2 cuts in the next 2 years, but also a drift higher in long term neutral rate (from 2.9% to 3%).
Terminal rate now stably above 4%, up at least 25/30bp in 1 month.
Is the treasury now cheap enough? Not exactly if you look at other markets, with both rates and model drifting higher). Tsy 10y remains at fair value using an intermarket approach.
And this is confirmed also across other govies markets, with the model I introduced in the last fixed income weekly.
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Credit from macro to micro.