Fed staff supports Powell
January 31, 2023
–A tweet from WSJ’s Timiraos yesterday: “Last month, the Fed’s staff revised its economic outlook in ways that imply inflation will be more persistent. ‘It was a significant move,’ said Riccardo Trezzi, a former Fed economist. ‘The staff is telling the committee, You cannot give up now.'”
–In a way, that clip captures market sentiment yesterday: the curve flattened with 2yr up 5.2 bps to 4.257% and 10yr up just 3.2 to 3.55%. On the SOFR curve, reds led the way, closing down 9.5, with greens -7.75 and blues down 6.0. Near one-year calendars rallied on the higher-for-longer bias, with SFRU3/SFRU4 up 6 bps to -149.5 (9522.5/9672.0; still the most inverted 1yr on the curve). SFRZ3/Z4 settled -135 (9553.5/9688.5), a nice bounce from last week’s block buy of 49k at -146.0.
–When reading the FOMC minutes, staff description of the economy and financial conditions can occasionally strike a much different tone from comments by participants of the committee. Recently I had read that Powell was upset staff hadn’t initially warned of the danger that inflation would be more persistent rather than transitory. Last month’s tweak could be a response to that. In any case, the market is locked onto an increase of 25 bps tomorrow.
–The IMF raised its global growth forecast, yet CLH3 is down over $1/bbl this morning at 76.76. Stocks also starting lower, but there are a lot of earnings reports (CAT MCD SNAP XOM to cite a few)
–News today includes Emp Cost Index for Q4, expected +1.1%, Chgo PMI expected 45.1 vs 44.9 last, Consumer Confidence 109.
