Here we go! A critical piece to the interest rate puzzle will be released in a short time–the 1st read on gross domestic product (GDP).
The final forecast from the Atlanta Fed’s GDPNow tool is for a 2.8% growth rate which is a drop of 1/2% since last week. The concensus forecast is at 3.1%. With the FOMC meeting next Tuesday/Wednesday this report will either bolster the decision made or will leave folks asking ‘why’? A low read will bolster the FOMC decision to lower rates while a hot number will leave economist and investors asking why a rate cut is necessary given the strength of the economy.
I believe that we WILL get a rate cut of 25 basis points next week based on what appears to be a bit of softness developing in the jobs market (we will have ADP jobs in a couple hours and official government employment numbers on Friday). Additionally I think the Fed has painted themselves into the proverbial corner by continual ‘hinting at’ rate cuts. Honestly these folks need to discontinue shooting their collective mouths off.
This morning the 10 year Treasury yield is trading at 4.23% which is off from the high of 4.34% yesterday–we’ll see where this day goes after economic data is released.
I remain mostly paused. With a goal of 7% annual gains in our accounts one will not be able to own just CDs and money markets (obviously), although it is preferable to taking sizable capital losses. I am focused on high yield and short duration issues–the term preferred and baby bonds list with near term maturities is here.