It is widely accepted the FOMC will not alter monetary policy today. The post meeting statement will be scrutinized to the umph degree in attempt to discern monetary policy direction. The odds are high that FRB Chair Powell may state the outlook is filled with uncertainty and monetary policy decisions may continue to focus upon its dual but conflicting mandates of maximum employment and price stability.
At the time of this writing, the markets are expecting about 80 bps of easing by year’s end, an easing that may occur in a rising inflationary rate environment, the first cut to occur in September. If this were to unfold, will inflationary expectations become “unanchored” causing a sharp rise in longer term Treasury debt?
The yield curve has steepened considerably partially on this premise, as inflationary expectations in various consumer sentiment surveys are at levels not experienced in almost three decades.
And then there is the $37 trillion and growing deficit. Who is going to buy this debt?
It is often written the most obvious conclusions are those that are ignored.
Changing topics, equities have almost erased the post April 2 debacle. Are equities signaling that the tariffs are more bark than bite? Or has the markets convinced themselves the tariffs will be walked back considerably and the well-known apocalyptic outcome will not unfold?
It is largely accepted the data may now become impacted by the tariffs [and DOGE]. As noted, government statistics indicate that only 9,000 federal workers lost their jobs in April [26,000 since January 20]. Will these numbers now begin to swell?
Commenting on yesterday’s market action, the S & P 500 retraced half of its losses on speculation that there will be some “deals with some top commercial partners soon.”
The 10-year Treasury auction was met with “average demand volume” perhaps fueled by economic damage that might occur from a global trade war. The auction was the catalyst for used a nominal rally across the curve with short term debt rallying more than long term debt causing marginal steepening.
Thursday is a 30-year auction. How will this auction be received?
Last night the foreign markets were down. London was down 0.38%, Paris down 0.61% and Frankfurt down 0.11%. China was up 0.80%, Japan down 0.14% and Hang Seng up 0.14%.
Futures are up about 0.5% on US/China trade talks and the outcome of the FOMC meeting.
At the time of this writing, the markets have trimmed their expectations of potential rate cuts to just over three with the first one in July. This compares to Thursday morning’s expectations of four rate cuts commencing in June. The massive rapid change in perceptions is unprecedented, partially the result of the unknown outcomes of many of the President’s ever-changing intentions. The 10-year is off 4/32 to yield 4.33%.
