Good Thursday AM from your Hometown lender,
Today’s data was very bond friendly.
Unemployment claims jumped higher than expected and the most in a year, continuing claims higher and the most in 2 yrs. , PPI inflation report weaker than expected. All points to a slowing economy and rate cuts from the Fed but when? President Trump today put more pressure on the Fed today not only chiding Chairman Powell as Mr. Too Late but also identified a 1% cut by the Fed would cut our nations interest carry by 300b/yr. He’s right.
The Fed should act at next week’s meeting, but markets aren’t expecting it.
If Fed Chair Jerome Powell’s press conference next week has any kind of dovish tone, meaning that the Fed is more accommodative to cutting, we could see rate sheets improve further. Maybe September is what markets are predicting now (75% probability).
Anyway…
Rates are better today on the weak economic data and hopefully will continue to improve, possibly besting last week’s best pricing. There is a Treasury bond auction going on now and which always has the possibility of moving markets. We will see.
The outlook for rates at this current moment, is that they will not move higher than we saw earlier in May around the 21st, which matched the highest since April 11th, when bonds tanked after the tariff chaos first started. In fact, it is more likely that rates will hold at least a quarter point better than that. There is definitely a floor to how low rates will move though, and it will depend on economic weakness and labor market weakness that shows itself over the next 60 days and beyond.
Dr. Elliott Eisenberg shared that 2025 looks to grow meekly for many reasons. First, fiscal policy is contractionary primarily due to required repayment of student loans, but also the likely removal of green energy tax credits. Second, tariffs are increasing uncertainty which reduces capex. Third, declining immigration will reduce employment and thus GDP growth. Lastly, monetary policy is also contractionary with rates too high. Collectively, these impacts probably slice one percentage point off GDP growth.
Stay safe and make today great!