Macro Horizons Falling Back
Oct 31, 2025
Ian and Ben dive into the recent Fed rate cut and the implications of Powell's messaging on market expectations. They explore the impact of the government shutdown on data reliance and the Fed's transition away from quantitative tightening. The duo discusses potential outcomes for December cuts and the challenges of overly aggressive market pricing. Tariffs and their inflationary effects are examined, alongside a forecast for the upcoming Treasury auction sizes. Lastly, they highlight an upcoming Supreme Court decision that could introduce further economic uncertainty.
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QT Ends; MBS Rolled Into Bills
- The Fed ends QT on December 1 and will reinvest maturing MBS into bills.
- That shift modestly boosts front-end liquidity and addresses recent funding stress.
Price December As Data-Dependent
- Treat December rate cuts as data-dependent, not guaranteed; monitor incoming prints closely.
- Focus on money-market signals and funding stress rather than assuming path-dependent cuts.
Dovish Cut, Measured Messaging
- Powell followed a playbook: dovish cut then a press-conference tone to limit market exuberance.
- This approach reduces the risk of markets expecting over-delivery that would widen financial conditions if unmet.