Current position: Carefully Floating
Stocks and mortgage bonds are lower to start the day, on the heels of some tough Fed talk.
The Fed
After the "stronger" than expected Jobs report and slower progress on inflation than expected in January, Fed members are once again talking tough.
James Bullard, who we have to remember is always an outlier and said he wants the Fed Funds rate at 7%, said he was in favor of a 50bp hike at the last meeting and wants 50bp at the March 22 meeting.
Mester and Kashkari also echoed those same thoughts, but remember, these were the same individuals who said inflation was not a problem and that the Fed did not have to do anything. After being so wrong, it appears they are not trying to make the same mistake twice and are talking tough on future hikes.
But Fed Chair Powell was pretty clear that the Fed would do 25bp hike from here. And the Fed may have already done enough, as Fed hikes take a long time to fully be felt by the economy. We are also seeing inflation come down significantly from the peaks, and even though the January data was a disappointment, there is clear disinflation in the pipeline. Shelter will catch up, and we expect the March 14 report to be favorable.
While it seems that the good news is a million miles away with the recent jump in yields, we do expect the next Jobs report, on March 10th, to show slower job growth. It will not include the adjustments we saw in January. And as we have gone over, future inflation reports will show much more progress, especially once shelter costs catch up.
Next Week
Monday: Markets closed for President's Day
Tuesday: Existing Home Sales
Wednesday: Mortgage Apps, Fed Minutes
Thursday: Q1 GDP, Initial Jobless Claims
Friday: Personal Consumption Expenditures (PCE), New Home Sales
Technical Analysis
Mortgage bonds are testing a very important floor at 99.845. At the same time, the 10-year is holding at an important ceiling of resistance at 3.90%. We believe there is a good chance these levels will hold, especially since the selling has been overdone. Begin the day carefully floating as Bonds try to hold on.
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