I wouldn’t call it the consensus yet, but financial market thinking seems headed toward a belief that the end of the Fed’s $120 billion a month in purchases of Treasuries and mortgage backed assets won’t be a big deal. Certainly not enough to upset the bond market or produce another temper tantrum. The belief hinges on forecast of demand and supply that sees them roughly in balance even after the Fed stops its buying. An end to Fed purchases would be a significant hit to demand. But it looks like the U.S. Treasury will be cutting back on bond auctions as about the same time. And that would leave demand and supply roughly where they are now.
No change. But change coming someday. (Not soon, though.) That was the message from today’s meeting of the Federal Reserve’s Open Market Committee.
The Federal Reserve has said that the current jump in inflation is temporary, a result of post-pandemic glitches in the supply chain. So far the market is going along with that view. But huge jumps in monthly inflation in May and now, this morning, June are treating that confidence.
The consumer price index (CPI) rose 0.9% in June from May and by 5.4% from June 2020, according to the Labor Department today. Excluding more volatile food and energy components, core CPI inflation rose by 4.5% from June 2020. That’s the biggest jump in core inflation since November 1991.
The Personal Consumption Expenditures index, the Federal Reserve’s preferred inflation measure rose 0.4% in May to an increase of 3.9% from May 2020. The core rate, which excludes food and energy prices, climbed at a 3.4% rate from May 2020. That was the highest annual rate since 1991.
The job market is improving, but the rate of improvement is tantalizingly slow. New weekly jobless claims in regular state unemployment programs fell for the week ended on June 19 to 411,000. Economists had expected a drop to 380,000. The prior week saw a (revised) 418,000 new claims.
The question for Monday and for the week ahead is whether stocks will pull back further on the Fed news or whether the market’s propensity to bounce back well before a slight dip can turn into even a 5% pullback will reassert itself.
Yesterday, growth stocks climbed in the face of signals from the Federal Reserve on Wednesday that interest rates increase were coming sooner–as soon as the end of 2022–than expected. That seemed puzzling. May be, one line of thought (mine) had it, investors and traders decided that growth stocks would outrun any increase in interest rates that might take place in 2022 or 2023. Today, we got the selling that many had expected yesterday
Yesterday’s Fed projection of an earlier than expected interest rate increase gives a boost today to tech growth stories
The Standard & Poor’s 500 was basically flat with a loss of just 0.04% as of the close today. If you want ACTION!!! you have to look elsewhere: To the NASDAQ Composite, which was up 0.87% as of the close and to the small cap Russell 2000, which was down 1.18% at the finish.
The rhetoric was the same after today’s meeting of the Federal Reserve’s Open Market Committee: “Inflation has risen, largely reflecting transitory factors.” But the Dot Plot that tracks projections by the committee’s 18 members told a very different story: There’s more reason to expect an earlier increase in interest rates than back in March.
The Fed edges closer to losing control over the inflation narrative ahead of tomorrow’s Open Market Committee meeting
The Federal Reserve is facing a “can’t win” situation on inflation as chair Jerome Powell prepares his post-meeting statement for tomorrow.
Retail sales fell by 1.3% in May from April, the Commerce Department reported this morning. Economists surveyed by Bloomberg had projected a 0.8% month over month drop. The month to month drop in retail sales was the first drop in month to month sales since February. Retail sales still grew a very solid 23% year over year as the economy continued its recovery from the pandemic recession of 2020.
After a quick jump in bond prices (and decline in yields) forced Treasury short-sellers to buy in order to cover their trade (and avoid further losses), today, Monday June 4, Wall Street strategists are saying that in the short-term the pendulum has swung back too far and it’s now time to go short Treasuries again ahead of Wednesday’s meeting of the Federal Reserve.