Morning Report: Fed Week

Vital Statistics:

 LastChange
S&P futures4,20614.2
Oil (WTI)104.90-4.59
10 year government bond yield 2.08%
30 year fixed rate mortgage 4.28%

Stocks are higher this morning as Russia and Ukraine begin talks. Bonds and MBS are down.

The big event this week will be the FOMC meeting on Tuesday and Wednesday. The markets expect the Fed to hike the Fed Funds rate by 25 basis points, and to announce that they have ended their Treasury and MBS purchase program, but will still reinvest the proceeds from maturing bonds back into the market.

A lot of the attention will focus on the dot plot and revisions to the economic forecast, particularly the core PCE which is the Fed’s preferred measure of inflation. In December, the Fed was forecasting 2.6% headline PCE inflation and 2.7% core (i.e ex-food and energy) inflation. While the Consumer Price Index (CPI) and PCE are not constructed exactly alike, they are similar enough. And last week, we saw a 7.9% increase in the headline CPI and 6.4% increase on the index less food and energy. And before someone says “Putin” these are February numbers, which precede the invasion. So, the inflation estimates are going up.

The dot plot from December shows the Fed expects about 3 rate hikes this year:

The Fed funds futures see another 4 hikes.

How those two things reconcile will be a big indicator in how the bond market behaves. Note the Fed was predicting a 4% increase in GDP this year in December. Stock market investors will be watching that forecast.

Aside from the Fed, we will get the Producer Price Index on Tuesday, retail sales on Wednesday, housing starts on Thursday and LEI on Friday. So we are in for a heavy week of data.

Housing inventory remains exceptionally low, according to Zillow. It estimates that US inventory fell to 729,000 homes in February. The big drivers of this have been the lack of homebuilding we have seen since the real estate bubble burst, and rising mortgage rates. With rates increasing, many homeowners who considered buying a move-up property are staying put, and many older Americans are aging in place.

15 Responses

  1. Good Taibbi piece:

    “Orwell Was Right
    From free speech to “spheres of influence” to our passion for endless war, we’ve become the doublethinkers 1984 predicted

    Matt Taibbi”

    https://taibbi.substack.com/p/orwell-was-right?s=r

    I’m thinking it took social media to complete the transition to a surveillance state. The key difference being that it’s the online mob that fills the role of Big Brother.

    Like

    • I agree about the online mob. That said, I do think that the online mob’s ability to control you is a function of your engagement on certain platforms and social media.

      If you aren’t on the main social media outlets, you don’t exist.

      Like

      • Cool, I don’t exist!

        Like

        • Hey limsinca.

          Like

        • The beautiful thing of being off social media is you can’t piss anyone off.

          Like

        • You can, it just takes more effort.

          Like

        • I barely exist. Someone hijacked my Facebook account and apparently I have no way of getting it back. Whatever. I nuked my Twitter account from 2006 that I’d had for like 14 years but even then barely used . . . and recently made a new one so it was possible to read Tweets, as they’ve made the site almost unusable if you don’t have an account. And barely use it. And never Tweet anything. Twitter is poison.

          All my online interaction is here and in a shitposting forum at Last Movie Outpost (that is hidden, cuz the content gets spicy) where most of the remaining participants are center-right to hard-right but it’s hard to tell because shitposting is mostly people trolling each other constantly, and then occasionally being serious. But it’s fun because people are rude and obnoxious in the ways that are no longer allowed and you have to have a very thick skin to participate. So it scratches some testosterone-fueled civil-libertarian itch.

          Hope all is well with you!

          Like

        • I still have my facebook page, but the only thing i do is plug my music and gigs.

          Like

  2. Cue the progressive meltdown.

    “Manchin opposes Biden Fed nominee Raskin

    Raskin would need at least one Republican to support her to be confirmed.”

    https://www.politico.com/news/2022/03/14/manchin-opposes-biden-fed-nominee-raskin-00017013

    Like

  3. 14 months in office.

    Even Carter took a couple of years.

    Like

  4. Green New Deal solves it!

    Like

  5. If a Republican had done this, we’d be subjected to unrelenting stories about the underlying sexism it conveyed and every prominent Republican in the country would be asked to comment on it. Instead it will be presented by the D megaphone media, if at all, as a light-hearted “gaffe”.

    https://www.dailywire.com/news/biden-announces-the-first-ladys-husband-contracted-covid-has-to-be-reminded-thats-him

    Like

    • They would be acknowledging that Biden is too old, has dementia, and talking constantly about invoking the 25th amendment . . . if he were a Republican. The underlying sexism would be Twitter food (he’s too old to remember his own name, but sexism is so intrinsic to Republicans he still remembers *that*) but I think there would be general public acknowledgement and constantly media complaining that he’s suffering from dementia and should not be president therefor.

      Like

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