Current position: Carefully Floating
Bonds are higher and stocks lower to start the day after the Fed statement and press conference yesterday.
Yesterday's Fed Statement & Press Conference
As anticipated, the FOMC hiked the Fed Funds Rate by 50 basis points to a target range of 4.25% to 4.50%. This is up sharply from where rates were only 9 months ago, in a range between 0% and 0.25%. In their statement, the Fed said that ongoing increases would be appropriate and that they would continue their balance sheet reduction. The surprise was in the Fed Funds Rate outlook, where 17 of the 19 members forecast a Fed Funds Rate of over 5%. The projected terminal rate, or the highest the Fed Funds Rate will go in the cycle, increased by 50 basis points to 5.1% from 4.6%. The market initially reacted negatively to this news because it signaled that the Fed intended to keep rates higher for longer than anticipated.
Sentiment shifted during Powell's Q&A when he acknowledged that the "inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases." He went on to telegraph a 25 basis point hike for the February 1 meeting. This continual slowing in the pace of hikes signaled to the market that inflation was getting under control.
As we've been telling you, we believe inflation will come down more quickly in the spring once the reduction in shelter costs is more reflected in the inflation reports.
Jobless Claims
Initial Jobless Claims, which measure individuals filing for unemployment benefits for the first time, fell 20,000 to 211,000, which is the lowest level since September. Continuing Claims, or those that continue to receive benefits after their initial claim, rose by 1,000 to 1.671 million. They have now risen 9 weeks straight and are at the highest level in 10 months. This 10 - month high in Continuing Claims points to a potential slowdown in the pace of hiring.
Retail Sales
Retails Sales decreased by 0.6% in November, which was weaker than estimates of a 0.2% decrease. Core Retail sales fell 0.2%, which was significantly under expectations of a 0.8% gain.
Technical Analysis
Mortgage Bonds are continuing to trade in a wide range with support at their 100 - day Moving Average and overhead resistance at the 101.671 Fibonacci level. The 10 - Year is breaking beneath its 100 - day Moving Average and appears poised to make a run at the next level of support at 3.431%. Carefully Floating.
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