US Treasury Secretary Bessent on the economy: We expect to see GDP revised

• We expect to see GDP revised.
• GDP decline may have been due to inventory stocking of imports.
• US households consumption is strong.
• 2 year yields below Federal Funds Rate is signal that the Fed should cut rates.
• Our policies will bring down inflation.

The bolded comment is a classic “rule of thumb” in the markets. When the 2 year yield falls below the FFR, it’s a signal that the market views the tightening cycle over and expects the Fed to cut rates soon.

The problem here is that it’s based on markets expectations and they can be wrong at times. We saw that in 2023 when the 2 year yield has been below the FFR for a long time but then went all the way back to match the FFR.

This article was written by Giuseppe Dellamotta at www.forexlive.com.