The two-year Treasury, or the instrument most sensitive to monetary policy is broaching 5%, the highest level since November.
After starting the year by pricing in as many as seven interest rate cuts in 2024, or 1.75 percentage points of easing, the market is doubtful there will even be a half point of reduction.
FRB Chair Powell commented yesterday about monetary policy, comments that were viewed generally as hawkish. The Fed Chief reiterated Fed talking points that policy makers need more confidence that inflation is moving to the 2% target sustainably before adjusting policy, interpreted as there has been a lack of further progress on inflation over the past several months.
Powell also said the Fed can maintain the current level of restriction for “as long as possible” however did not mention the possibility of another rate increase, the narrative of which has been rising.
Markets were generally unfazed by his remarks.
This overall change in monetary policy expectations, however, is now starting to impact equities as both the S & P 500 and NASDAQ have had their worst back-to-back selloff in more than a year according to Bloomberg.
And then there is the unrelenting advance of the dollar. Will the narrative soon begin to rise that this incipient increase will affect trade and GDP as American goods become more expensive overseas?
Last night the foreign markets were up. London was up 0.51%, Paris up 1.31% and Frankfurt up 0.61%. China was up 2.14%, Japan down 1.32% and Hang Seng up 0.02%.
Futures are about 0.30% as earnings return to center stage. The 10-year is up 4/32 to yield 4.65%.
Kent Engelke
Chief Economic Strategist Managing Director
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