The Week in Markets - Higher for longer is a distant memory

Higher for longer is a distant memory, with the 10 year treasury yield at 4.2%, from 5% in October. Stocks love this, because when the discount rate analysts use goes down, valuations go up. The European Central Bank looks like it will be the first developed economy central bank to cut rates, after the governor of the Bank of France said last week “barring any shock, rate hikes are now over. The question of a cut may arise when the time comes during 2024”. Also last week, the first Federal Reserve official implied rates in the United States could be cut. In a speech, Governor Chris Waller cited the Taylor Rule, that computes the optimal Fed Funds rate. Last year the Taylor rule implied the Fed funds rate should be as high as 8%. Now it’s saying 5.3%, which is lower than the current Fed funds rate of 5.5%.