Fed policy will dominate market narrative when shutdown end, says Fed Watch Advisors' Ben Emons

Group 1 - The Federal Reserve is experiencing a division among governors regarding the direction of interest rates, with a slim majority expecting two more cuts this year [1][3] - There is a lack of data due to the government shutdown, which is complicating the Fed's decision-making process [1][3] - The 10-year yield has remained relatively stable over the past 18 months, indicating a sideways trading pattern, which may suggest uncertainty in the market [4][5][6] Group 2 - The Japanese yen has been weakening significantly, leading to higher yields on Japanese Government Bonds (JGBs), which may impact the U.S. bond and equity markets [7][8] - The Bank of Japan faces pressure to raise rates due to high inflation, creating a complex relationship with global bond markets [8] - The Fed's balance sheet is at a critical level just below $3 trillion, raising concerns about the potential impact on the banking system if reserves become too low [10][11] Group 3 - The Fed's cautious stance may lead to a more dovish approach in future meetings, which could positively influence the stock market [12][13] - Faster rate cuts could push yields higher, reflecting increased stimulus in the economy, especially with the stock market reaching record highs [13]