All Things in Moderation

Markets are higher as oil continues to fall. Bonds and MBS are up small.

Industrial production rose .1%, lower than expectations, however that was probably due to the weather. Capacity Utilization fell to 78.9%, which was negative as well. Weather probably had a lot to do with the disappointing numbers, but January’s numbers were revised downward in a big way, with industrial production being revised to -0.3% from 0.2% and capacity utilization revised from 79.4% to 79.1%.

Homebuilder Sentiment fell to 53 in March from 55 in February.

This week is all about the word “patient.” The FOMC meets Tuesday and Wednesday and the Street will be keying on the word “patient” – in the context of “The Fed can be patient in waiting to raise rates. Janet Yellen characterized patient to mean “two more FOMC meetings.” In other words, if the word is gone from the statement, the market will take it to mean the Fed is moving in June. Given this is a March meeting, we will have updated projections for GDP, unemployment, and inflation as well as a press conference.

The biggest issue facing the Fed is wage growth. Why are we not seeing wage growth with unemployment pushing “full employment?” It is a vexing question. The answer is that we have a huge reservoir of people who are considered not part of the labor force, but want to be. As these people return to the labor force, wage inflation will remain low until these people are all employed. Mark Zandi of Moody’s believes that this will take about a year, and by this time next year, we will start seeing wage inflation.

US Treasuries are getting a bid courtesy of the Japanese, who are selling JGBs to pick up yield wherever they can. US debt probably provides the best value out there.

OT: Shameless Plug: Did you know financial professionals rock? This one does. Check out my entry for the Jamtrackcentral 2015 guitar solo contest and give me a like. I appreciate it.