- With Jackson Hole this week, we are seeing a lot of news regarding the FED. Most FED officials highlighted inflation risks as outweighing concerns over the labor market at their meeting last month. This is a direct result of tariffs fueling a growing divide within the central bank’s rate-setting committee. Officials have acknowledged worries over higher inflation and lower employment, but a majority of the 18 policymakers in attendance “judged upside risk to inflation as the greater of these two risks.” With this said, all eyes/ears will be on Powell’s speech this Friday.
- With today’s (8/21) Jobless claims numbers out, they are showing signs of a slowing labor market. Applications for US unemployment benefits rose last week to the highest level since June, and continuing claims also climbed. This continues to add evidence that the US labor market is slowing, a strong gauge for the FED regarding setting policy.
- Raphael Bostic (Atlanta FED) indicated he still sees one rate cut this year, which is in line with his production in June, but added (before today’s numbers) the labor market is “potentially troubling” and bears watching. Bostic has made it clear he is not stuck on any move, meaning he thinks one would be sufficient, but should the labor markets move in a negative direction, there could be two. Bottom line here, seems like many FED members are hedging their bets as numbers come out.
- As we know, Jackson Hole is this week, and markets are bracing for clues on the next interest rate move when Powell takes the stage Friday, but this might not be the only item traders will be seeking. Powell will also unveil changes to the central bank’s monetary policy framework. Core inflation has been stuck at 3% and many in the FOMC indicate it will not return to 2% until 2028, which is more than 7 years above the “targeted” rate, a persistent deviation. We have indicated for many years, 2% is an unrealistic number in our opinion.
- Many Traders are placing big bets that the FED is poised to lower rates, and this will face a key moment on Friday. This will be Powell’s last appearance at Jackson Hole, and in my opinion, he will want to preserve his legacy as he exits in May of next year. Keep in mind, however, the .25% cut is most likely “baked into the market” at this time.
- S&P has reaffirmed America’s AA+ credit rating, citing “meaningful tariff revenue” likely raised by the White House’s aggressive trade policies. With this said, T yields have risen based on tariff concerns.
- Washington, D.C., avoided a credit downgrade this week as Frith removed its negative watch on the district’s debt. The shift “reflects progress” towards the $1.1 billion in spending cuts mandated by the federal government. Fitch rates DC AA+ currently.
- Moody’s Rating Services has lowered its outlook on Johns Hopkins University to stable from positive, citing uncertainty over Federal research funding. This is a common trend we will be seeing in this type of credit. If you own higher education that is not insured by either BAM or AGM, we advise you to take a close look at that credit.
- Bottom line, yields continue to remain elevated and will most likely remain here for the next few weeks or so. We anticipate a rate cut and expect a small rally in Fixed Income; however, if the cut is a quarter, we believe this is already factored into the trade. If you are buying for the long term, continue to purchase quality. Over time, the yields on paper will move down, and you should be glad you bought at these levels.
Securities offered through NewEdge Securities, LLC, member FINRA and SIPC. The DRL Group is not a subsidiary or control affiliate of NewEdge Securities, LLC. NewEdge Securities, LLC. has no affiliation to BondDesk Trading LLC or BondTrader Pro, or Tradeweb Direct, Bondpoint, TMC, Market Axess or any ECN.
Yield to call (YTC) is not indicative of total return; this yield is valid only if the security is called. Bonds may or may not be called, or be callable on multiple dates or, in other cases, called any date following the first call date, so yield to call is based on the earliest stated call date. Discounted bonds may be subject to capital gains tax. Bonds may be subject to OID (Original Issue Discount). Prices and availability may change at anytime without notice.
Do not buy bonds based on the Yield to Call (YTC). Insured bonds are issued for timely payment of principal and interest only. Insured bonds do not cover potential market loss and are subject to the claims paying ability of the insurance company.
Non-rated (NR), With-Drawn (WR), or below investment grade bonds, lower rated bonds, carry a greater potential risk of default & should be considered by sophisticated investors only.
This document is for informational purposes only and does not replace or serve as a substitute for your official monthly statement generated by NFS. Please refer to your official statement for accurate and comprehensive account details.
Bonds may be subject to capital gains tax. This summary is for informational purposes only and is not an offer or solicitation for the purchase or sale of any security or a recommendation or endorsement of any security or issuer. NewEdge Securities, LLC. and DRL Group make no representation about the accuracy, completeness, or timeliness of this information. Bonds could also be subject to the DeMinimis Rule, please consult with your tax advisor for further clarification.
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