9 min readCould potential changes in the economy from the end of the Fed’s tightening cycle lead to a higher neutral rate? Introduction With the Federal Reserve System (the “Fed”) nearing the end of its tightening cycle, the question for investors has shifted to whether rates can truly remain “higher for longer”, to quote the current in-phrase…
4 min readCPI – headline spike all energy related Headline inflation had been forecasted to increase in August as a result of the highest fuel prices so far this year. So, it came as no surprise that CPI rose +0.6% in August, which marked the highest monthly increase since June of 2022. However, markets were surprised that…
2 min readAugust Bond Yields – Up, then Down To recap, US Treasury yields rose during the first half of the month led by a variety of factors: increased Treasury supply, solid economic data, higher inflation expectations, reduced overseas demand for US government securities and Fitch’s ratings downgrade. The 10-year note reached a 16-year high of 4.36%…
4 min readTwo Down, Two To Go Following July’s FOMC meeting, Fed Chair Powell repeatedly referenced the theme of data dependency and confirmed that the Fed will be focused on the two job reports and two CPI reports still to be released ahead of their September meeting. To date, we’ve seen two of the four reports. First…
3 min readThe Fed is ‘Data Dependent’, as Always As was widely expected, the Fed increased their policy rate last week by 25 basis points to a new range of 5.25%-5.50%. This level is a 22-year high and it marks the 11th time since March of 2022 that the Fed has raised their target rate. The official FOMC…
3 min readSoft Labor Market & Inflation Releases June’s Employment Report was released on July 7th, showing an increase in non-farm payrolls of 209,000 vs. expectations for 230,000, marking the first time that payrolls have come in below market projections in the past 15 months. Additionally, payrolls were revised downward by a total of 110,000 in the…
4 min readYields Rise Welcome to the third quarter and the second half of 2023! Treasury yields rose across the curve during the second quarter, led by the 2-year note which rose 87 basis points to 4.90%. The rise in yields was a result of solid economic data, elevated inflation, and a Fed signaling a “higher-for-longer” monetary…
4 min readFederal Reserve – A Hawkish Pause As expected, the FOMC held the Federal Funds rate at the 5.00%-5.25% range at their June FOMC meeting, marking the first pause after 10 consecutive increases. The Fed has raised rates by a cumulative 5 percentage points since March of 2022, the most since the 1980s. Powell commented that…
7 min readThe History of the Fed’s Quantitative Tightening (QT) and its current standing The Fed’s history with Quantitative Tightening (QT) is both limited and perilous. Its only prior experience with Quantitative Tightening in 2018-2019 ended in disaster, when funding markets locked up in September 2019 due to a lack of available liquidity. This episode is infamously…
2 min readEmployment and Inflation Markets inferred optimism on inflation earlier this month from Federal Reserve Chairperson Jerome Powell’s press conference accompanying the FOMC’s February 1st decision to raise rates. While the Fed’s statement and Powell himself indicated that more than one additional rate hike remained likely, markets contradicted the Fed’s guidance and bet that only one…