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Inflation to overshoot target by 1 pp It will take 2-3 years to get back to targetCould be a decade of Fed overshooting targetDoes not put high odds on labor market downturnIt’s not obvious the Fed should cut again given inflationShe’s hawkish but that’s no surprise. Given the drop in equity markets today, the odds of a December cut are up to 71%, which is higher than at the start of the week despite the ADP and ISM services data.
This article was written by Adam Button at investinglive.com.
💡 DMK Insight
Inflation’s expected overshoot by 1 percentage point is a wake-up call for traders: With the Fed’s hawkish stance, interest rate strategies are back on the table. If inflation takes 2-3 years to stabilize, traders need to brace for potential volatility in both equities and bonds. The current environment suggests that the Fed may not cut rates anytime soon, which could keep pressure on growth stocks while benefiting sectors like financials that thrive in higher rate scenarios. Look for key levels in the S&P 500 and Treasury yields; if yields rise, it could signal a rotation out of tech and into value stocks. The labor market’s resilience adds another layer—if employment remains strong, the Fed might feel justified in maintaining its course, which could lead to further tightening. Keep an eye on inflation metrics and Fed commentary over the next few months to gauge market sentiment and adjust positions accordingly.
📮 Takeaway
Watch for inflation metrics and Fed signals; a sustained overshoot could lead to rate hikes impacting growth stocks and Treasury yields.
