Have rates peaked?

SPEAKER_1 (0:00)

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SPEAKER_2 (0:20)

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Ethan Wu (1:00)

All year in markets, there has been, give or take, one question, which is, like a kid in the backseat, are we there yet? Investors have been wondering if the Fed is done raising rates, and increasingly, they think it is. Markets have rallied almost 11% in the month of November on the back of expectations that the Fed is just about done.

Katie Martin (1:03)

Today on the show, peak rates euphoria.

Ethan Wu (1:04)

This is Unhedged, the markets and finance show from the Financial Times and Pushkin. I'm reporter Ethan Wu here in the New York studio, joined by FT Markets editor, Katie Martin in London, who heroically subbed in for me on Thursday while I was enjoying Thanksgiving here in America.

Katie Martin (1:20)

I have to admit, I'm not jealous of that many aspects of American culture, but I do like the idea of Thanksgiving.

Ethan Wu (1:26)

This is the national gorging day, and I certainly participated at a friendsgiving party that I was at. We ended up, you know, it was a potluck style affair, and we didn't coordinate the food well enough. We ended up with seven pies.

And, you know, we didn't finish all of them, but I certainly partook in a certain amount of pie eating, which has left me feeling, frankly, Katie, quite euphoric today.

Katie Martin (1:43)

Well, I am also feeling euphoric because of rates. It's a bit weird that there's this idea of euphoria, like people are literally having parties in the streets because of interest rates, but look, the lingo is what it is.

Ethan Wu (1:54)

Did you replace the Thanksgiving holiday? You were jealous that we have Thanksgiving, so you replaced it with getting really, really excited about interest rates.

Katie Martin (2:00)

Yes, I shall be observing this day from now on.

Ethan Wu (2:04)

So, the market reaction has been pretty unambiguous. Across the board in US markets, it's been stock celebrating, bond celebrating, credit spreads are tightening. It's very much the vibe is soft landing.

Rates have peaked, they're going to come down, and that gives everyone kind of a good feeling. It's the opposite of what we saw in 2022, which is when rates went up, it killed the mood. Everyone's feeling terribly dour.

Even though we're printing 500,000 jobs a month, everyone's feeling like we're on the brink. And now it's kind of the opposite. You know, falling rates are a bit positive sum. It's a bigger pie, at least as far as investors are concerned, and everyone's feeling pretty good, it feels like.

Katie Martin (2:40)

Yeah, it's all about the pies for you, huh? So yeah, the market has decided, rightly or wrongly, that the top is in, right? The rhetoric, if you like, from big central banks, chiefly the Fed, is, okay, we're gonna tread carefully from here. We've raised rates really fast, really high. Everybody knows that interest rates have these long and variable lags.

And so no, the economy is not sinking into a giant hole yet, but let's kind of step back from this rate raising cycle and see what happens next and not just keep on plugging on. So the guidance from central banks is, okay, inflation is kind of under control. Let's just take it easy for a bit.

The market has taken this and run with it, really run with it. So you have, for example, as you say, stocks up like 11% since the end of October in the States. That's like a lot. So we're up 18% year to date on the S&P. Who would ever have thought it? Not I, for a start.

Ethan Wu (3:33)

It's a good year, really solid.

Katie Martin (3:34)

We're up 30, really solid, can't knock it. We're up 36% on the NASDAQ composite. So all those kind of very techie stocks that love, love, love low rates have just gone completely off to the races.

In the bond market, so the government bond market is supposed to be like really boring. It's supposed to move really slowly. That was how it used to work in the good old days.