Markets have also come to terms with a Fed pause, as the yield curve has flattened noticeably. Term premiums have been compressed by ongoing uncertainty holding back long-term investments.  But a flat yield curve is preferable to the inversion witnessed earlier this year. As prospects for growth improve, we expect risk tolerance to recover, leading to yield growth in longer-term bonds. While most buyers in futures markets are not convinced the rate cuts are over, consensus is clear that any future cuts will happen at a slower pace.

The Fed’s leaders have had unenviable jobs this year. Any decision they made was bound to draw criticism. But they have risen to the challenge, acting appropriately thus far. Further cuts would signal economic weakness, and we hope they will not be needed.

Carl R. Tannenbaum is executive vice president and chief economist at Northern Trust. Ryan James Boyle is a vice president and senior economist within the Global Risk Management division of Northern Trust. Vaibhav Tandon is an associate economist within the Global Risk Management division of Northern Trust.

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