Data Calling Fed’s Confidence Into Question

As the new year began, the late 2023 assumption of multiple rate cuts from the Fed quickly gave way to the notion of needing “just a bit more confidence” that inflation was sustainably on the path to 2.0% before rate cuts could commence.  That shift in verbiage coincided with a shift in inflation numbers in January’s data.  Now that February’s inflation data is mostly in, we find inflation running nearly as hot as last month at the consumer level and even hotter at the producer level.  Today’s PPI confirmed the latter and the bond market didn’t love it.  Jobless claims added insult to injury with a big drop in continued claims and big revision (lower) to last week’s 1.9m+ reading.  All this with less than a week to go before the next Fed announcement and dot plot.

Econ Data / Events

Core MM PPI

0.3 vs 0.2 f’cast, 0.5 prev

Core YY PPI

2.0 vs 1.9 f’cast, 2.0 prev

Headline PPI MM

0.6 vs 0.3 f’cast, 0.3 prev

Retail Sales

0.6 vs 0.8 f’cast, -1.1 prev

Jobless Claims

209k vs 218k f’cast, 217k prev

Continued Claims

1811k vs 1900k f’cast, 1906k prev

Market Movement Recap

08:35 AM After the data, 10yr at 4.223% (up 3.5bps on the day). MBS down 6 ticks (.19).

09:45 AM Additional weakness.  10yr up 7.3bps at 4.261.  MBS down 10 ticks (.31).

11:57 AM More weakness.  MBS down 15 ticks (.47) and 10yr up almost 11bps at 4.294.

02:28 PM MBS are down 17 ticks (.53). 10yr yields are up 11.2bps at 4.30.