Waller HODL
February 18. 2025
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–From Waller’s speech yesterday:
After two good months of inflation data for November and December, January once again disappointed and showed that progress on inflation remains uneven. I continue to believe that the current setting of monetary policy is restricting economic activity somewhat and putting downward pressure on inflation. If this winter-time lull in progress is temporary, as it was last year, then further policy easing will be appropriate. But until that is clear, I favor holding the policy rate steady.
https://www.federalreserve.gov/newsevents/speech/waller20250217a.htm
–Previously he had opined that further rate cuts were warranted; now wants to wait and see as economy is firm and inflation is bouncy. Waller also briefly touches on the divergence between rate cuts and the corresponding surge in 10y yields, but merely notes that divergences have occurred before, and offers no explanation for the current situation, apart from saying. “It’s NOT OUR FAULT.” I have no idea why that section was even included in the speech:
“This example is just to illustrate that the 10-year Treasury yield may not respond to the policy rate as expected because of a variety of factors that are beyond the control of the FOMC.”
By way of contrast, the Trump admin does NOT think that the 10y yield is beyond its control.
–Friday featured lower yields, as midweek inflation data were ignored. Retail Sales were weaker than expected, supporting treasuries. I marked ten down 5 bps at 4.474%. On the SOFR strip reds and greens (2nd and 3rd years forward) were strongest, up 7.5. Peak contract is SFRU6 at 9608.5, right around 3.9% one and a half years from now. Seeing a bit of divergence currently between bitcoin and nasdaq, as NQH5 is poised to make new ATH, (22450 on 12/16/24 and now 22283), while XBT is middle to lower end of the past 3-month’s range 91200 to 107000 (current 95670). Of course, that divergence could close at any minute, but bitcoin appears to be trading a bit long and heavy at the moment.
–March treasury options expire Friday. TYH5 currently pinning the 109 strike.
