Bond Vigilantes Butting Heads With Washington's Profligate Crowd

Despite yesterday's 25bps cut in the federal funds rate (FFR), we're not raising our subjective odds of a stock-market meltup. While we're cautious in the short run through January, we're sticking with our odds of the Roaring 2020s (55%), a 1990s-style meltup (25%), and everything that could go wrong (20%). The reason we aren't raising our meltup odds is because the FOMC delivered a "hawkish cut" yesterday, signaling fewer cuts next year amidst concern about inflation.

Nevertheless, the Bond Vigilantes are still fighting inflationary monetary and fiscal policies. They've tightened financial conditions to offset the Fed's 100bps cuts in the FFR since September 18. They may also be starting to resist inflationary fiscal policies. President Donald Trump told NBC today that he would like to ditch the debt ceiling, which would remove a speed bump from ever-increasing government deficits.