February 5, 2024
The Fed met the middle of last week and indicated they were leaning towards rate reductions but maybe not for a while. And then the jobs report came out on Friday and showed the economy generated 353,000 jobs in December. The November report had a gain of 333,000 jobs. Doesn’t look like a recession is coming. But, it also means rates will likely be a bit sticky coming down. Forecasts originally were calling for rate reductions possibly beginning in March but that’s very unlikely.
The bond market liked what Powell had to say on Wednesday but didn’t like what the Jobs Report said on Friday. Short term rates (six months or less) have been pretty stable over the past month hitting lows last Thursday, but longer term rates, after initially rallying on the Fed news moved higher Friday and Monday. The ten year note started the year at 3.95% and closed today at 4.17%. Inflation remains over 3.00%.
With the increase in longer rates and shorter rates static, the inversion (2 month-10 year) has increased to 134 bps.
The dollar has been stable against most other major currencies.