Good Tuesday AM,

The last day of January and the first day of the Fed meeting is underway.

We won’t have the policy statement and more importantly, the commentary until 11am Wednesday so for now, most markets are in a holding pattern as no one wants to get too far ahead of what the Fed will say and do. A .25% hike is locked in (in pencil, not pen) but the commentary is a bit opaquer (I spell checked this word and it is accurate). While I think the Fed should acknowledge GDP while printing at 2.9% for the last quarter is closer to 1% and will struggle going forward; retail sales are anemic as no one wants to or is buying (which will also be a drag on GDP), inflation is subsiding by both the CPI and PCE metrics, and employment is cracking, as there have been 2.67 mm part time jobs lost with full time employees the next to fall; the Fed will likely point to headline numbers that are looking in the rearview mirror and claim the need to be hawkish still exists and will for some time.

I really hate this as they know what we know.

Consumer Sentiment (out today) declined more than expected as did the employment cost index (wages falling) and housing indices. Inflation will cool considerably as we are replacing previous higher months readings (which is also backwards looking) and the housing component which represents almost 40% of CPI will also be cooling off in March and April. The Fed knows this. The Fed is worried about a soft landing but keeping its feet stomping on the breaks is unlikely to allow for it. Off my soap box, for tomorrow, unless there is some unexpected hawkish commentary (more hawkish than above), I would expect that markets will improve as for the most part as the .25% and the hawkish commentary is already baked into the pricing, and they don’t believe the Fed at this moment.

Keep in mind that we still have .75% wider spread in mortgages vs the 10-yr note than the historical average. Rates will improve based on this alone.      

More than half of workers in major US cities went to the office last week, the first time that return-to-office rates crossed 50% of their pre-pandemic levels. An index of building occupancies in 10 major metro areas increased 0.9 percentage points to 50.4% in the week ended Jan. 25,

• The International Monetary Fund said the global economy will grow 2.9% this year.
• This represents a 0.2 percentage point improvement from its previous forecast in October.
• However, it said that revised number would still mean a fall from an expansion of 3.4% in 2022.
• IMF calculations say that about 84% of nations will face lower headline inflation this year compared to 2022.
• It also revised its projection for 2024 down to 3.1%

Please remain safe and stay healthy, make today great!