Fed's 'strong economy' narrative widely questioned by Wall Street

BlockBeats news, October 29 — The Federal Reserve kept interest rates at their current level on Thursday as expected. In its latest policy statement, the central bank upgraded its assessment of U.S. economic expansion from "moderate" in September to "strong." The Fed noted that business investment remains strong and employment growth is keeping pace with the size of the labor market.

Market participants have raised widespread doubts about the Fed's optimistic economic outlook. With growth momentum somewhat weakened, some observers believe that only slight weakness in economic fundamentals would be needed to break this "strong" outlook. As for how this strong performance will actually drive price pressures lower, it remains unclear.

After Warsh's press conference, bets on further rate hikes decreased as he made no clear commitment to future policy actions. Against this backdrop, the spread between 2-year and 10-year Treasury yields, which had flattened in previous weeks, widened again, reaching as much as 34.1 basis points.

The sharp sell-off at the long end of the curve indicates that investors are grappling with a complex situation that goes beyond short-term monetary policy. Investors holding 10-year and 30-year U.S. Treasuries face greater exposure to inflation expectations and interest rate changes over a longer period. When uncertainty increases, they demand additional compensation for bearing this duration risk, thereby pushing yields higher and bond prices lower.