Economists at U.K. bank Barclays, a key player in the U.S. Treasurys market, have revised their forecast for a Federal Reserve rate hike, pushing it back to January. This decision comes in response to a disappointing increase of only 150,000 jobs in the payrolls report, accompanied by a 0.1-hour slip in the work week. Additionally, downbeat ISM reports have led Barclays to lower its fourth-quarter GDP forecast to 1.5% annualized.
Although recent data have favored the Fed's stance, financial conditions have not followed suit. Barclays economists note that Chair Jerome Powell emphasized the importance of persistent developments, rather than just expected policy moves, in influencing rate decisions. However, recent developments contradict both conditions - the 10-year yield has retraced a significant portion of its increase since September's meeting, the stock market has rebounded, and the dollar has softened. This circularity loop puts the FOMC in a challenging position as policy-making based on tightening conditions undermines the very tightness it aims to achieve.
Market expectations, as indicated by the CME FedWatch tool, currently assign a 10% probability to another rate hike by December and a 16% chance of a move by February.
In light of these factors, U.S. stock futures have marginally increased (+0.16%) while the yield on the 10-year Treasury has risen by 7 basis points to 4.59%.