The Zhitong Finance App learned that Robert Tipp, chief investment strategist and head of global bonds at Prudential Fixed Income (PGIM Fixed Income), and Tom Porcelli, chief US economist, commented on the Fed's interest rate cut. The Federal Reserve maintained a 25 basis point cut in interest rates on November 7 and firmly reiterated that the interest rate path will continue to be based on market data and gradually move towards neutral interest rates. Given recent stable US economic data, this intention may be more gradual than initially anticipated during the Fed's easing cycle, but Chairman Powell later explained the reasons why the Fed continues to move towards neutral interest rates. Risk assets strengthened due to further easing of monetary policy, while long-term interest rates partially recovered and continued to increase after Powell delivered his speech.

The participants in the Federal Reserve press conference are clearly concerned about political issues, but Powell is more concerned about whether the federal funds rate is still restrictive, and committee members want to avoid further weakening of the labor market. Although some participants continued to point out that the September employment data was better than expected, the data now appears to be an anomaly in terms of labor market conditions (although considering the October labor market data was affected by the hurricane). As a result, we continue to see signs of a further slowdown in labor disparities, resignation and recruitment rates in the World Federation of Large Enterprises, the Federal Reserve Beige Book, and small business recruitment.

Since Powell is fully focused on the labor market, and the inflation rate is within the target range of the Federal Reserve, it is more reasonable for the Fed to cut interest rates further. Despite many uncertainties, the Federal Reserve's forecast for the federal funds rate of 3.5% at the end of 2025 is still a useful reference starting point for the current cycle. Of course, as Powell suggests, neutral federal funds rates are difficult to accurately identify, so be patient as you move towards this rate range.

In fact, another key lesson from this meeting is to be patient. Overall, recent economic data is relatively stable. In particular, there has been a sharp improvement in income data, and the savings rate has also been raised from 3% to 5%. Higher levels of savings help support economic activity. Therefore, the Federal Reserve can continue to move towards neutral interest rates and maintain a strong level of the labor market as much as possible, but the pace may slow down. Overall, the Federal Reserve's current policy stance is relatively calm.

Regarding the US presidential election results, Powell said that the Federal Reserve's assessment of the economic situation and the administration's monetary policy stance remain unchanged. He added that the new administration's policy measures may change the economic environment in the future, but the Federal Reserve will respond when changes become apparent.

The Federal Reserve may slow down the pace of interest rate cuts, but it will never stop. How will this affect the outlook for the bond market? Since the Federal Reserve meeting in September, economic data performance has been stronger, and the market seems to have made corresponding adjustments. It may have absorbed more optimistic data expectations, thereby driving yields to remain at an attractive level in the future.

After the US election results were released, credit spreads continued to rise in the bull market and have now reached historically high valuation levels. Although interest spreads are therefore more susceptible to short-term fluctuations, fundamental factors remain steady, and net demand for fixed income remains stable. These factors suggest that interest spreads are likely to fluctuate in a range close to historic lows for some time to come.

In summary, despite the uncertainty in the market environment, yields have recovered to levels not seen since the global financial crisis or before the outbreak of the pandemic. Furthermore, central banks are likely to have passed their respective cycle peaks. Even if the market still fluctuates intermittently, the bull market pattern that began at the end of 2022 is expected to continue.