Just two weeks ago on Oct. 19, Federal Reserve Chair Jerome Powell spoke at the Economic Club of New York and said that interest rates had to remain high to reduce wage gains in a “tight labor market” in the United States. He added that the bond market was doing the Fed’s work for it, by continuing to raise interest rates without Fed action.
On Nov. 1, however, in his press conference following the Federal Open Market Committee’s two-day meeting, Powell appeared to discover that net labor costs in the U.S. economy had actually dropped in the third quarter of this year—to wit, “wage gains have really come down significantly over the course of the last 18 months to a level where they’re substantially closer to that level that would be consistent with 2% inflation over time"—and gave clear signals that the Fed was finished with rate hikes. The bond market then appeared to “do the Fed’s work for it” as the Treasury 10-year bond rate dropped from 4.95% to 4.65% in a flash.
