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Market Snapshot 5/2/24- Let’s Talk Fed

Good Thursday Afternoon, from your Hometown Lender,

Let’s talk Fed.

The ultimate decision was no surprise. The Federal Reserve held interest rates steady at its policy meeting. Officials mentioned in their policy statement a “lack of further progress” this year in the fight to reduce inflation, an allusion to three straight months of consumer-price data that came in hotter than expected as the reason for no cut. No reaction whatsoever on that revelation as markets had read no May cut since February. Powell later said it is “unlikely” that the Fed’s next policy move would be a rate increase. Hmm, I don’t think there was any serious concern the Fed might hike rates again, but Vice Chairman Williams had floated that thought a bit ago.

Markets were happy to hear Mr. Powell stomp that ember out before it caught any fire.

That’s a plus one for the bond market. Then Chairman Powell did commit to slowing down its bond sales even more than had been hoped and to reinvest payoff proceeds back into bonds which means the Fed now becomes a buyer of bonds in some cases. That’s another plus one for the bond market. That was it and there were no real negatives other than Mr. Powell would not guess on when the Fed might cut. In my opinion, it looks pretty good for September now and then at least a second cut before the end of the year. If the data comes in weaker than expected, three cuts are right back on the calendar. Since the Fed meeting the 10-yr note has improved 9bps and mortgage bonds about 50bps. Still not out of the woods. We had a lot of data today. Job cuts came in low; unemployment claims were a bit below expectations, unit labor costs are way up but buoyed by lower productivity.

Now, attention turns to the April jobs report, due Friday morning.

Economists polled by The Wall Street Journal are expecting the U.S. added about 240,000 jobs and the unemployment rate held steady at 3.8%. These are base line numbers. I could see many more jobs than 240k being “reported” created. It is tough to float into the biggest data set of the month. If you float, go with eyes wide open.

Stay safe and make today great!