Currie notes that when employment features more heavily in Fed communications, it implies greater likelihood of future cuts. This cut does follow a very disappointing topline October jobs report, which may have been skewed by the impact of major hurricanes. Given the slowdowns we’ve seen in the US economy, Currie believes we should expect maybe one more 0.25 per cent cut in December. He has less clarity about cuts going into 2025.
Despite the poor October jobs numbers, Currie emphasizes the relative strength of the US economy compared to Canada and other developed countries. That relative strength, he says, feeds into the relatively shallow cuts we’ve seen from the Fed so far.
There are mixed signals in the US economy, though. While employment was weak in October, CPI came in unexpectedly high, giving some investors pause and pushing yields slightly higher. The US election results also sparked an uptick in yield. Many investors expect that President Elect Trump’s stated policies of deportation, tariffs, and high government spending will be inherently inflationary. Currie explains that this consensus pushed yields higher in the leadup to the Fed announcement.
Following the announcement yields fell and bond investors got a bit of relief. Nevertheless the increase during a cutting cycle poses some challenges for investors and advisors. Currie notes that speculation plays a role in that short-term market volatility. Just as the Fed’s past hikes are still impacting the US economy, even if Trump takes office and immediately implements tariffs, the inflationary side should take a while to kick in.
Because he attributes some of the bond volatility to more short-term speculation, Currie sees opportunities in the bond market long-term. Given the fall in yields accessible to Canadian investors through vehicles like GICs, Currie sees a need for alternate yield vehicles. He believes that there may be opportunity in the bond market on the longer end of the yield curve. Adding duration in a bond portfolio now may be a strong way for investors to access that yield. Given the spikes we’ve seen in yields, though, there may be some short-term volatility that bond investors will have to endure.
