A new neutral rate, much like a decades-old one
TLT•Markets have priced in a 66% chance of a Fed rate hike in October and 90 basis points of total tightening ahead, while a new, higher neutral rate is drawing comparisons with the 1990s.
1. Oil and markets
Oil and yields rose in Asia, stocks were mixed and gold fell, while European share futures were firmer. Brent climbed around 2% after President Donald Trump rejected Iran’s latest proposal to reopen the Strait of Hormuz. Brent has closed above $100 for three straight weeks and is up 17% so far in September.
2. Rate expectations
Markets have priced in a 66% chance of a Fed hike in October and 90 basis points of total tightening ahead, with no rate cut expected until mid-2028. Two-year yields are up 55 basis points this month, while the 30-year yield has risen 25 basis points in September, mostly through the term premium.
3. Growth and neutral rates
The article cites stronger growth forecasts for Asia, Europe and the United States, with the Atlanta Fed GDPNow estimate putting third-quarter growth at 5.0%. It says central bankers are discussing a higher neutral rate, resembling the rate of the 1990s, as energy costs make it harder to look through the shock.
