In listening to Jerome Powell today in his semi-annual testimony to the House of Representatives, a few things stood out. 1. With services inflation accelerating in January, many wondered if Powell would strike a more hawkish tone and walk back expectations for rate cuts this…

Overall, the FOMC press conference seemed dovish today. I noticed four things in what Jerome Powell said (source): 1. Cutting rates in March is not likely as-of now but the door is open to it. Powell said, “Based on the meeting today, I would tell…

The idea that the Fed can cut rates soon just because inflation has fallen has kept the bond market expecting a rate cut as soon as March (50% chance as of today) and the stock market elevated. This theme has allowed the bond market to…

Federal Reserve Governor Christopher Waller started the idea in late November that the Fed would be cutting rates soon but he took that away yesterday, likely causing a near-term inflection point towards higher short-term Treasury yields. It was a major moment for the bond and…

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 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…