A sharp repricing in U.S. interest rate cut expectations could give more fuel to a searing bond rally triggered by weakening economic data, as investors grapple with the possibility the Federal Reserve may need to loosen its tight grip on the economy much faster than anticipated to avoid a recession.
Earlier this week investors were assessing whether the U.S. central bank may have been too late in shifting to a less restrictive posture when it held borrowing costs steady at its July rate-setting meeting. That changed to drastically late during the week, as manufacturing data on Thursday and weak employment data on Friday sparked recession fears and a sharp repricing of monetary policy for the rest of this year.
"The rising unemployment rate says the Fed has fallen behind the curve," said Tony Farren, managing director at Mischler Financial Group.