FRB Chair Powell stated yesterday that the Central Bank expects the inflationary aspects of the tariffs will be felt later in the year. Powell also commented the FOMC probably would have cut rates further this year absent the threat/use of tariffs. When the Fed Chief was asked about a July reduction, he did not rule out the possibility stating, “We are going meeting by meeting.”
As written several times, Powell does not set short interest rates, the Federal Open Market Committee does, and Powell is only the spokesman for this august group.
There are approximately 21 members on the Committee, of which 12 vote. At the conclusion of the June meeting, 10 policy makers foresee at least two cuts this year, seven projected no cuts in 2025 and two penciled in just one reduction by year’s end.
Performance of Treasuries during the second quarter was the best in two years as monetary policy assumptions changed once again. Before the release of yesterday’s data, the first of three major reports that are released this week,, markets had fully discounted two interest rate reductions by year’s end and a 65% chance of a third. Two months ago, consensus was maybe only one reduction.
Yesterday’s data perhaps again altered this perception as the JOLTS Job Opening statistics for May showed an unexpected, steep increase to the highest level since November. The report indicated strength in other dimensions including the “quit and layoff rate.”
Treasuries sold off across the curve.
The FOMC is an awkward position in many ways. First there is the tension between its forecasts and recent data, most of which have largely missed the mark in terms or growth (stronger than forecasted ) and inflation (lower than projected).
And then there is the President bullying the Chairman. It must be noted that every President has suggested (demanded) lower interest rates. Trump is not special as he is following a well-honed precedent. Trump is perhaps only more bellicose than his predecessors.
Today the ADP Private Sector Employment survey is released. In years past, this data point carried considerable significance but its correlation back to the BLS Employment report (released tomorrow) has waned considerably.
Commenting on yesterday’s equity markets, the S & P 500 was little changed but the NASDAQ declined about 1%, the result of rising Treasury yields and from a 1.5% in the Magnificent Seven.
Last night the foreign markets were up. London was up 0.11%, Paris up 1.32% and Frankfurt up 0.42%. China was down 0.09%, Japan down 0.56%, and Hang Seng up 0.62%.
Futures are little changed ahead of tomorrow’s key employment data and trade talks. The 10-year is off 14/32 to yield 4.30%.
