Chart of the week: a changing narrative
Data-driven insights and analysis from our investment team every week.
In mid-September, when I last updated, markets were bracing for a Fed rate cut amid overt political pressure from the Trump administration and early signs of a softer labour market. Since then, the Fed has pushed back firmly against interference, reinforcing its independence. Attempts to unseat Governor Lisa Cook failed, restoring credibility at a critical juncture.
Even as the employment picture has continued to deteriorate, the earlier downward trend in expectations for 2026 policy rates has stalled. Fears of more aggressive, politically motivated cuts have receded for now. By contrast, long-term yields – which were rising in August amid much fanfare in the financial press, even as expectations for rate cuts were growing – have quietly declined, until this week.
In recent days, the US Fed has guided toward a cut this week, while the Bank of Japan has signalled that investors should expect an imminent hike. The last 15 months have reminded us that interest rates can move in different directions, both within and across currencies and geographies. Lower policy rates will translate into lower long rates only if those cuts can be expected to persist, while rising rates in one country can coexist with falling rates in another where cycles are out of sync. Ultimately, however, absent meaningful fundamental divergences, uncertainty around future expectations is such that cross-market anchoring effects can become a dominant force, shaping global capital flows and, by extension, long-term US borrowing costs.
