Good Tuesday Morning from your Hometown Lender,
Rate sheets this morning should improve a bit and reprice risk on the day is low.
There is no data today, no Fed speakers, nothing to really give bonds any direction or cause any concerns. However, tomorrow morning brings the CPI inflation data at 8:30am ET, before tomorrow’s rate sheets will come out. Tomorrow’s CPI report will be one of the most influential reports the FED will use to determine the pace of rate cuts at next week’s meeting.
Bloomberg had a good primer on the upcoming Fed meeting.
A week from today, the Fed will begin its two-day meeting, at which it’s widely expected to start a rate-cut cycle. There continues to be a very loud debate about whether they’ll go 25 or 50 basis points, with the market leaning towards 25, while assigning a non-trivial chance of the other.
From a strictly economic sense, the difference between 25 and 50 isn’t that big. A 50-basis-point cut would be seen as kind of a line in the sand type of move, that the Fed is serious about not letting the labor market deteriorate further. 25 would be more in keeping with institutional inertia, that aggressive cuts are reserved for crises, which we’re not in right now.
Anyway, here’s an interesting chart.
It shows the Bloomberg Labor Surprise Index, which looks at how the totality of the labor market data is coming in relative to expectations. As you can see, we’re basically near the lowest levels of the last two decades. In 2021 it got a hair worse. And it was lower in 2009 and 2006. But the big picture is that most data has been coming in solidly worse than expectations. So even though last Friday’s unemployment showed a modest sequential improvement from the prior month, the overall story is one of ongoing softening.
The biggest US banks would face a 9% increase in capital requirements, under proposed revisions to the Biden administration’s signature plan for the sector, according to people familiar with the matter. That’s less than half the 19% hike in the original plan by the Federal Reserve and other regulators. Sharp reductions to the capital mandates are more likely to appease banks, and could help Fed Chair Jerome Powell meet his goal of drawing broad support from the central bank’s board. Fed Vice Chair for Supervision Michael Barr plans to preview the changes in a speech Tuesday. A representative for the Fed declined to comment. Increasing reserves tightens capital and will make loans both more expensive and less available.
Stay safe and make today great!
