It's hard for the Fed to sound too hawkish right now, says BofA's Mark Cabana

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Bank of America 8.8
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Mark Cabana 9.0

It's hard for the Fed to sound too hawkish right now, says BofA's Mark Cabana

yields

If the unemployment rate continues to tick up, then watch out because rates are going to continue to drop from here. If unemployment data deteriorates, the Fed will be forced to cut rates sooner and deeper than expected, pulling yields down. Recalibration would steepen curve with short-term rates coming down more.

16 calls

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no reliable edge (random outcomes)

12/5/2025 12:40:03 PM	medium term cautious down	21 days later	-1.34%	+0.67%
12/1/2025 6:33:31 PM	short term cautious down	6 days later	+2.10%	-1.05%
11/13/2025 8:45:37 PM	medium term cautious down	20 days later	-0.96%	+0.48%
10/29/2025 1:10:31 PM	short term cautious down	5 days later	-0.10%	+0.05%
10/15/2025 6:53:52 PM	medium term cautious down	20 days later	+4.55%	-2.28%
9/18/2025 10:17:17 AM	short term cautious down	5 days later	+0.19%	-0.10%
9/17/2025 6:36:22 PM	short term cautious up	5 days later	+0.39%	+0.19%
9/17/2025 4:38:45 PM	medium term cautious down	20 days later	+0.61%	-0.30%
9/5/2025 10:40:41 PM	medium term cautious down	21 days later	+2.35%	-1.17%
9/3/2025 5:31:38 PM	medium term sharp down	20 days later	-0.69%	+1.04%
8/14/2025 9:14:07 PM	short term cautious down	5 days later	-0.74%	+0.37%

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Introduces Mark Cabana, Head of US Rates Strategy at Bank of America Securities, to discuss bond market and Fed decision.

speaker1
Mark Cabana

Fed is very divided, which is not uncommon at an economic turning point. Hard for them to sound hawkish with so much backlogged data yet to come.

Government shutdown backlogged data; rapid pace of incoming data (jobs, CPI, retail sales) starting next week makes it hard to guide policy.
Mark Cabana

Most important data point is the unemployment rate. Fed only expects it to go to 4.5%; if data shows it going to 4.6% or higher, the Fed's tone will change dramatically.

Fed has been concerned about labor market; hiring has slowed. If unemployment continues to deteriorate, the Fed will have a hard time pausing.
Mark Cabana

Market thinks the Fed is done and will stay on hold. If unemployment rate continues to tick up, watch out because rates are going to continue to drop.
Notes Powell's optimism on disinflation and structural productivity growth, suggesting Fed won't stand in way of higher GDP if no reflation.

speaker3
Mark Cabana

Powell sounded more optimistic on disinflation, thinks inflation will fall once tariff effects roll out, giving Fed green light to keep cutting.

The risk is unemployment ticking up, especially next week, forcing bond market to recalibrate.
Mark Cabana

Recalibration would be a pulling forward of rate cut timing and cutting below where market thinks Fed will stop (~3% nominal).

This would steepen the curve: short-term rates come down more, long-term rates nudge down a bit, front end and belly (5-year) move lower. Several folks in DC want this outcome.
Mark Cabana

Fed announced large-scale bill purchases. These are NOT quantitative easing, not designed to remove duration risk or signal future policy.

Action was to better anchor money market rates in target range, not about broader asset prices.
Mark Cabana

Must view Fed action in concert with Treasury, which is issuing more at front end (T-Bills), removing duration risk. Fed buying bills complements this.

Combination modestly assists easing financial conditions and is a tailwind for financial assets. Fits with administration's desire to get long-end rates down.
Mark Cabana

Quantitative easing was mostly a psychological operation. The combination of Treasury and Fed actions works in that direction, easing financial conditions.

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