Would inflation be low enough for the Fed to cut in March?
The real Fed funds rate (Fed Funds minus inflation) is a simple metric of how tight the Fed is. Using the Fed’s preferred inflation (core PCE deflator, YoY), this is currently 1.9% (5.4% Fed – 3.5% inflation = 1.9%.) In other words, the Fed Funds…
The Fed pivots
The 2-year U.S. Treasury has fallen a large 30 basis points from the Fed meeting yesterday because the Fed was dovish when they were widely expected to be hawkish but more importantly, because of the “once a business cycle” significance of shifting towards being dovish…
Recent yield behavior is consistent with historical cyclical yield peaks
I think cyclical yield peaks were made for the Treasury market in October (on 10/18 for the 2-year and 10/19 for the 5 to 30-year.) This is based on the Fed pausing after a rate hike cycle, the yield curve de-inverting, leading economic indicators continuing…
Leading indicators suggest a hard landing
The Federal Reserve and many financial pundits are hoping for a soft-landing; a condition where real growth falls below trend rather than goes negative (a recession) after an economic boom cycle. Take these predictions with a grain of salt because they are a trope before…
The Fed used a hawkish tone this week to keep bond yields higher
The two-year rose 23 basis points this week after several Fed speakers put an emphasis on not being sure if they are done hiking rates. I suspect they used this language, not because of a changing opinion about pausing (the economic data has been weak…
On the Fed meeting yesterday
Interest rates fell along the yield curve during Jerome Powell’s press conference yesterday because he remained resolute about pausing despite strong economic data since the last meeting. Markets had feared his tone would change after strong Q3 economic data. It did not. The Fed’s stance…
On Q3 GDP
Treasury yields fell after the strong Q3 GDP report this morning (+4.9%) because a big number had been incessantly talked about, predicted, and priced-in over the last three months. For the Treasury market, it was sell the rumor, buy the news. Now, the market will…
Inflation is falling fast
Despite the pervasive narrative that inflation is stubborn and sticky, it is falling quickly compared to other disinflationary periods. Both the core (excluding food and energy) and headline consumer price index have fallen at their second fastest rate compared to other historical disinflationary periods going…
Why the 2yr fell significantly after Powell spoke yesterday
The 2-year has fallen 12 basis points since Jerome Powell’s speech and interview yesterday. On the surface, he didn’t say anything new. But it was a shift because he reaffirmed his pausing stance for the first time since he last spoke about monetary policy at…
FOMC meeting summary
The FOMC forecasts were hawkish describing a soft-landing, but the press conference was dovish. Forecasts (Summary Economic Projections or SEP) Short-term rates sold off dramatically yesterday afternoon; the 2-year rose 12 basis points. This was largely because the Fed’s average expectation for the Fed Funds…