31 Jan ALWAYS EXPECT THE UNEXPECTED
The FOMC said it will be “patient” on any future interest rate moves and signaled flexibility on the path for reducing its balance sheet, a substantial pivot away from its bias just last month towards higher borrowing costs.
So much for a uneventful Fed meeting especially regarding dropping its previous language calling for “some further gradual increases.” Many interpreted the Fed’s comment that it opened the door for the next move to be either up or down as it cited “global economic and financial developments and muted inflation pressures” in any monetary decisions.
The Committee also stated “household spending has continued to grow strongly…and economic activity has been rising at a solid rate and job gains have been strong.” There was no reference to the shutdown.
I rhetorically ask is the Fed setting itself up for failure as the Treasury market trades upon expected inflationary pressures? By the Fed’s admission, the economy is strong and historically the 10-year Treasury should be trading around a 4.5% yield in today’s environment. The FOMC cannot lose the confidence of the bond market regarding the central bank’s commitment to combatting inflation. The results will be disastrous.
Nominally changing topics, the private sector ADP Employment report was yet again stronger than anticipated. This data bodes well for a potential upside surprise in tomorrow’s BLS data. The statistics also offers evidence to the Fed’s opinion that the labor market is strong.
Equities responded positively to the outcome of the meeting with shares advancing another 100 points. As widely notes the indices were advancing moderately following several earnings reports. Speaking of earnings, Facebook posted an upside surprise while Microsoft disappointed. The shares responded accordingly.
What will happen today? Will there be progress in trade negotiations?
Last night the foreign markets were up. London was up 0.59%, Paris up 0.26% and Frankfurt up 0.09%. China was up 0.35%, Japan up 1/.06% and Hang Sang up 1.08%.
The Dow should open flat as some are suggesting prices went too far too fast. The 10-year is up 4/32 to yield 2.67%.