Rates as of 0500 GMT

Market Recap

Is the US in recession? Technically, yes we learned yesterday that Q2 GDP contracted at a 0.9 quarteronquarter annualized rate qoq SAAR, following the 1.6 qoq SAAR decline in Q1. That means the US is in a technical recession. However using the criteria that the National Bureau of Economic Research NBER uses to define a recession, absolutely not and the NBER has the final say in the matter. Watch for my Weekly Outlook later today for the full story.

Nonetheless, the market behaved yesterday as if the US is in recession. Thats probably because the data dovetailed with comments from Fed Chair Powells press conference Wednesday. He noted several areas where activity had slowed consumer spending, housing activity, and business fixed investment and said that As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation. The market interpreted this to mean that the Fed is starting to pay attention to other factors besides inflation. If thats the case, then two consecutive quarters of GDP contraction should certainly catch their collective eyes.

As a result, the market further reduced its expectations of Fed tightening.

The odds that there would be only 75 bps more rate hikes this year implying perhaps a 50 bps hike in September, a 25 bps hike in November, and no hike in December…