The bond market bounces higher after the better-than-expected September jobs report indicated the labor market may be stronger than previously expected. George Catrambone, head of fixed income and head of trading at DWS Group, joins Julie Hyman and Josh Lipton on Market Domination to outline his view that the Federal Reserve’s September 50 basis cut may have been preemptive and what it means for the fixed income market going forward.

He says the Fed may have been too eager to cut 50 basis points at the September meeting, explaining, “I think they were in front, and I think it's too early to call it a policy error. But the data didn't portend going 50 basis points at that time. And going into the blackout window, retail sales was still strong enough. CPI was actually kind of firm. That's where I'm turning to the page next to next week to know whether or not it was actually an error, is the question is whether or not inflation continues the downward trajectory, especially when that services sector and jobs at least rebounded today.”

He adds, “The data didn't necessarily say we had to do an outside outsized cost cut. I think it was based very much on that July data that came out and surprised everyone. Maybe it was the jobs report, maybe it was the yen carry unwind, or maybe it was geopolitical. But you saw race to treasuries, and ever since then, the positioning has been really crowded around the front end... If you look at it since August, front-end yields have moved quite a bit.”

The asset manager says the Fed’s next cut is “still data dependent,” but he expects two 25 basis point cuts at the Fed’s next two meetings and “then a reassessment for next year.”

He worries that the first 50 basis point cut “wasn't warranted with the economic conditions and ultimately there's a potential for a reacceleration of inflation… We'll have to see next week, but there is a tacit admission, in at least our opinion, that the steepening that you see right now in the yield curve was [the Fed being] okay with inflation hanging around 2.5%. And I think if you really wanted it to slay the inflation beast, it could have been a bit more measured” with three 25 basis point cuts.

This post was written by Naomi Buchanan.