Economist James Glassman of JPMorgan notes that while the Federal Reserve will be unveiling its new quarterly economic forecasts tomorrow, the bond market is already doing some forecasting of its own—and the message is a total downer:
Market forecasts, those embedded in asset prices, however, have proven to earn their keep. Three numbers in particular are highly informative: 4.5% (the Fed's interest rate target); 3.31% (2-year Treasury note yield); 4.14% (10-year Treasury yield). Market prices imply that policy rates are still 100 basis points above equilibrium levels. The Federal Open Market Committee says the risks are balanced. Few outside the Beltway think so. ... The market view that the Fed will continue to cut rates, including a high probability that this will happen again on December 11, isn't about the upcoming data. It is about a realization that Federal Reserve policy needs to become accommodative, and soon, if there is any hope of cushioning the economy from the damage of drying credit pipelines. Forecasts are helpful, but forecasts can't incorporate what we can't see. And markets don't like what they see.