Who is in control now?/Gold/Other

I don't believe Jay Powell when he woke up Friday morning was expecting or wanting the reaction in the markets we saw to his speech that he gave that day. This is a committee where many members just a month ago talked about the markets further tightening for them when we saw the 10 yr yield go from about 3.75% in July, when they last hiked rates, to a short term peak of 5%. While that 10 yr yield is still 50 bps higher, the 2 yr yield is about 40 bps lower. We are seeing writ large again how the Greenspan incorporation of 'financial conditions' into monetary policy can influence and cloud that policy. Who pushes who around? The markets or the Fed? Sometimes it's the latter but now it seems to be the former. 

And what a round trip in financial conditions as measured here by the Goldman Sachs index. The lower it goes, the easier they get and vice versa. As for this writing, when I look at the fed funds futures, by May the market has priced in a 100% chance of a 25 bps cut and a 38% chance of a 2nd one by then. In March, the rate cut odds are at 68%. 

Keep in mind here with the 'odds' calculation, there are a few different techniques and not just one when figuring it out so would explain why sometimes you hear different answers. I specifically use the fed funds futures market and I use the 'effective fed funds rate' which is currently 5.33% when doing the math. 

And that move in gold last night was wild, spiking to a record high and then backing off to little changed. Now gold is not coming out of nowhere here. Over the last two years it has traded amazingly resilient in the face of the dramatic rise in real rates, about 400 bps in 5 yr TIPS, and the rise in the US dollar. So once we got relief on both, gold was just a coiled spring. And much of that resiliency has been the buying on the part of central banks.