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Market Snapshot 3.7.23- Happy Powell Day

Good Tuesday AM,

It is troubling after 6 attempts we failed to break below 3.91 on the ten-year.

It is equally as troubling that the Mortgage bonds continues to fail to break through resistance after 6 or more attempts. This is why locking at the top of the range is usually a good idea. Federal Reserve Chair Powell speaking today at the first of his two day semiannual congressional testimony, said strong and sustained economic activity to start this year could prompt central bank officials to accelerate interest-rate increases and will likely lead them to lift rates more than they expected to combat high inflation.

Markets heard that as a 50bp hike in March. Not what our doctor ordered for sure. “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.” So there’s that.

Along with that was a great story about accounting in the WSJ.

Click the link for more insight as it is really fascinating but which number are we really focused on? The U.S. lost 2.5 million jobs in January. It also added half a million. Government statisticians report both numbers. The first is the raw number. The second is seasonally adjusted, meaning it takes into account things like holidays, time of year or the number of weekends in the reporting period. Ordinarily, seasonal adjustment is an obscure process. Lately, it’s getting more attention from economists who wonder whether the pandemic has caused broad shifts in economic activity that disrupt seasonal adjustments.

Just reality, of the 132.5 million households nationwide, nearly 49% are unable to afford a house priced at $250,000. That’s according to the National Association of Home Builders, which recently updated its “housing affordability pyramid” for 2023.

If you would like some additional insight on Mr. Powell’s commentary, the below piece from Bloomberg offers a good recap, although maybe a bit optimistic.

Good morning and Happy Powell Day. The Fed Chairman has the first of his two Capital Hill appearances today, in which he will deliver his Semi-Annual assessment of monetary policy and also take questions from Senators. Here’s a few scattered things on my mind.

1) Obviously it will be interesting to hear Powell talk about the seemingly renewed growth momentum. Earlier in the year, virtually nobody was using terms like “no landing.” How much acceleration is happening now? And more importantly, why would there be acceleration happening after such a rapid pace of rate hikes in 2022?

2) More broadly, you know, going back to the beginning of 2022, even the most hawkish of pundits didn’t expect such a fast pace of rate increases. And yet we got these rate hikes exceeding everyone’s forecasts, and still inflation is hot.

3) To some extent the answer to this mystery is going to be some combination of “Well the economy was stronger, and inflation was more entrenched, than had been appreciated at the beginning of the year.” But then to some extent, this is question-begging. What is giving the economy this durability? And why didn’t mainstream forecasters recognize this strength earlier in the year?

4) Speaking of labor market strength, the next Non-Farm Payrolls report will be interesting. There continue to be incremental signs of labor market easing — companies saying that it’s getting less hard to find workers, and so forth. Meanwhile yesterday LinkedIn came out with its latest Workforce Report which indicates a meaningful slowdown this year.

LinkedIn Chief Economist Guy Berger has more on the data in this great thread. Anyway, the point is, yes, the unemployment rate has been ultra-low and surprisingly sticky. But the possibility that it eventually starts to buckle can’t be ignored, particularly as corporate layoff news remains ongoing.

5) Hopefully some Senator today (or at least a House member tomorrow) asks an articulate question about whether the Fed would accept a trillion dollar coin from the Treasury in the event of a debt ceiling impasse. And hopefully that Senator or House member has followups prepared to specifically get at what Powell means if he talks about the Fed’s role as a “fiscal agent” for the Treasury.

Please remain safe and stay healthy, make today great!