Morning Report: Slightly dovish Fed meeting

Posted on March 21, 2024 by Brent Nyitray

Vital Statistics:

Stocks are higher this morning after the Fed’s statement kicked off another rally. Bonds and MBS are up.

The Fed maintained the Fed Funds rate at current levels as expected and signaled that it would begin cutting this year. The dot plot was pretty similar to December, which signaled three rate cuts this year. The fear going into the meeting was that the majority of voters might move from 3 cuts to 2, but that didn’t happen. That said, there were more votes for 2 cuts than there were in December.

In the economic projections, the Fed raised their estimate for this year’s GDP growth from 1.4% to 2%, pushed down their estimate for unemployment from 4.1% to 4% and increased their estimate for core inflation growth from 2.4% to 2.6%.

During the press conference, Jerome Powell said that the recent disappointing inflation numbers might be due to seasonality, and he also said that the Fed might begin to taper its balance sheet runoff. I think the comments on tapering QT were a surprise to the market. Theoretically this should be a positive for MBS spreads, although the Fed’s MBS portfolio is way out of the money, and the only runoff will be from people who are moving.

When asked about shelter inflation, he mentioned that rents seem to be cooling off and he was convinced that overall inflation would move lower.

Overall, the stock market liked the decision and the bond market seemed to take comfort in the fact that quantitative tightening might decrease going forward. The yield curve became slightly less inverted, with the 2s-10s spread going from -36 basis points to -32 basis points. Given the strength of the overall economy, it is surprising to see an inverted yield curve.

The Fed Funds futures didn’t make any dramatic changes, although the June chances of a rate cut increased from about 60% to 75%, while the December futures remained at three cuts. The December futures are handicapping a bigger chance of 100 basis points than 50 this year.

Overall, the Fed statement and press conference was mildly bullish, and the big takeaways are that (a) the Fed seems unconcerned about the recent hot inflation prints and (b) the Fed wants to slow its balance sheet reduction which should be supportive to the 10 year bond and MBS spreads.

Redfin was out with their take on the meeting and its impact on mortgage rates: “Mortgage rates are still expected to fall gradually this year as the Fed solidifies its plans to cut rates this year. When enough economic data accumulates to set the stage for that, rates will start to drop. However, we don’t expect rates to drop precipitously. We should end the year in the low 6% range. That means the housing market won’t shift dramatically this year, but we do expect more supply and transactions this year amidst weakening price growth.”

Deutsche Bank strategist Jim Reid had this to say: “Last night saw a remarkably relaxed Fed as Powell indicated that January’s higher inflation could have been seasonal, and February’s print had already seen improvements,” said Deutsche Bank’s Jim Reid, adding that Powell’s dovish-leaning press conference drove equities higher and yields lower. “Our economists continue to expect the first rate cut to come in June with 100 bps of cuts in total this year, but with risks skewed to a more hawkish outcome,” Reid added.

Filed under: Economy |

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41 Responses

  1. Let the mutherfuker burn!, on March 21, 2024 at 12:44 pm said:

    Brent, would love your opinion of this. Feels right though.

    Like

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    • Brent Nyitray, on March 21, 2024 at 7:26 pm said:

      IMO, the Fed wants to maintain inflation-adjusted interest rates (i.e. real rates) at a constant tight level in order to bring down inflation.

      The last time the Fed hiked (in July), inflation was much higher. So if the Fed wants to keep real rates static, they have to bring down interest rates in order to take into account falling inflation.

      That is what I think is going on. Shelter inflation is 70% of the inflation numbers right now, but IMO food inflation is a lot higher than the government is letting on – I think they are ignoring shrinkflation.

      That said, the Fed does want Biden to win, and there may be a political reason for them to err on the side of easing.

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  2. Let the mutherfuker burn!, on March 22, 2024 at 8:01 am said:

    This made me laugh.

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  3. Let the mutherfuker burn!, on March 22, 2024 at 7:35 pm said:

    Out: The horror of Trump’s “bloodbath” comment.

    In: Hey, Biden needs to get people to do some “wet work” on Trump, like a mob hit.

    https://redstate.com/nick-arama/2024/03/22/carville-calls-for-wetwork-against-donald-trump-n2171748

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    • Brent Nyitray, on March 22, 2024 at 7:40 pm said:

      I think it is funny to watch the left try and disassociate themselves from “defund the police” now that places like NYC and Portland are war zones.

      Like

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  4. jnc4p, on March 23, 2024 at 3:51 pm said:

    Trump should use this as a campaign ad:

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  5. jnc4p, on March 24, 2024 at 4:40 pm said:

    One wonders how New York functions at all if a judge would actually allow this:

    https://archive.ph/Cuu7c

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  6. Let the mutherfuker burn!, on March 25, 2024 at 8:38 pm said:

    I hear this and it makes me want to vote for someone other than Kennedy. Why vote for a “qualified candidate” if, philosophically, you disagree with them? If there ever was a time in American history, it’s long passed.

    Kennedy doesn’t get it and from my perspective, he needs to be replaced with someone who does.

    https://redstate.com/sister-toldjah/2024/03/25/sen-kennedy-puts-on-master-class-skewers-dems-crying-islamophobia-over-controversial-biden-nominee-n2171898

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  7. jnc4p, on March 26, 2024 at 11:38 am said:

    Ivy league degrees are becoming a big “do not hire” flag.

    https://www.theatlantic.com/ideas/archive/2024/03/stanford-israel-gaza-hamas/677864/

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  8. Brent Nyitray, on March 26, 2024 at 5:53 pm said:

    Ronna McDaniel didn’t even last a day

    The Hive Mind remains intact

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    • Let the mutherfuker burn!, on March 26, 2024 at 7:24 pm said:

      If I were an investor in Comcast I’m selling as fast as I can. Any idiot could see this coming and it shows just how badly out of touch management is with their audience.

      I have no love for Romney and I wonder what she was thinking. She only valued herself at $300k per year? Really? That’s embarrassing.

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      • Brent Nyitray, on March 26, 2024 at 7:30 pm said:

        It was funny watching the hysterical left get the vapors over this while they were a-ok with george stephanopolous and jen psaki.

        It isn’t like she was going to challenge The Narrative.

        It does show how weak-minded their audience is.

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        • Let the mutherfuker burn!, on March 26, 2024 at 9:08 pm said:

          That dumb bitch even renounced her previously held position that the election was stolen!

          All for $300k a year. It’s hilariously pathetic!

          Like

        • jnc4p, on March 27, 2024 at 1:57 pm said:

          Well in this case, it was probably $300k for a week.

          And it’s a win/win for her. Now she gets to be the cancel culture martyr with a much higher profile and victim street cred.

          Like

        • Let the mutherfuker burn!, on March 27, 2024 at 2:12 pm said:

          Looks like it was to be $600k over two years. Again, that’s embarrassing. I’d pay them not to disclose how little I was paid.

          Like

        • jnc4p, on March 27, 2024 at 1:58 pm said:

          “It isn’t like she was going to challenge The Narrative.”

          Yep. More than likely it was going to be another “Former Trumper” going over to the other side to validate them.

          Like

    • jnc4p, on March 28, 2024 at 9:28 am said:

      Peak 2024 MSM:

      “You are rolling out “ATTACK ON DEMOCRACY” chyrons in reference to your own hiring decision.”

      https://www.racket.news/p/ronna-mcdaniel-and-msnbc-ultimate

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  9. jnc4p, on March 27, 2024 at 1:59 pm said:

    Anyone know of a way to change the default main Substack background/theme to white instead of black? I find it easier to read black text on a white background than vice versa.

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  10. jnc4p, on March 27, 2024 at 6:16 pm said:

    Perfect:

    “Jon Stewart found to have overvalued his NYC home by 829% after labeling Trump’s civil case ‘not victimless’

    By Mary K. Jacob

    Published March 27, 2024

    Updated March 27, 2024, 1:29 p.m. ET”

    https://nypost.com/2024/03/27/real-estate/jon-stewart-found-to-have-overvalued-his-nyc-home-by-829/

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  11. Let the mutherfuker burn!, on March 27, 2024 at 7:10 pm said:

    Oh, the humanity!

    Protestors stated that one student was “nearing toxic shock” with symptoms such as pain, nausea and feeling feverish but was still not being allowed to use the restroom without being removed from the premises.

    </b>

    https://redstate.com/sister-toldjah/2024/03/27/absolute-hilarity-ensues-after-anti-israel-vanderbilt-sit-in-does-not-go-according-to-plan-n2171983

    toxic shock, yo.

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  12. jnc4p, on March 27, 2024 at 7:54 pm said:

    Amusing read. MSM writers are still so lacking in self awareness that they don’t realize when they are making the case for the opposing viewpoint:

    https://www.nytimes.com/2024/03/27/opinion/javier-milei-argentina-capitalism.html

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  13. Let the mutherfuker burn!, on March 27, 2024 at 8:36 pm said:

    Hilarious news aggregation post over at Ace.

    https://acecomments.mu.nu/?post=408995

    Woman who used taxpayer funds to pay her gigolo says that men are never harassed over their own sexual peccadilloes.

    Does that sound stupid to you? #MeToo.

    Like

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    • Brent Nyitray, on March 28, 2024 at 3:46 pm said:

      i think the parties are breaking down via gender, with democrats as the party of (single) women.

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      • jnc4p, on March 29, 2024 at 6:57 am said:

        James Carville agrees with you:

        A suspicion of mine is that there are too many preachy females” dominating the culture of his party. “‘Don’t drink beer. Don’t watch football. Don’t eat hamburgers. This is not good for you.’ The message is too feminine: ‘Everything you’re doing is destroying the planet. You’ve got to eat your peas.’

        “If you listen to Democratic elites — NPR is my go-to place for that — the whole talk is about how women, and women of color, are going to decide this election. I’m like: ‘Well, 48 percent of the people that vote are males. Do you mind if they have some consideration?’”

        https://archive.ph/35RKY

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        • Brent Nyitray, on March 29, 2024 at 7:48 am said:

          I think single men, married men, and married women generally vote Republican, while single women overwhelmingly vote Democrat.

          Like

  15. jnc4p, on March 28, 2024 at 2:16 pm said:

    No, actually you don’t get a say on who Justice Thomas gets to hire as his law clerks:

    https://archive.ph/S3yCD

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  19. jnc4p, on March 29, 2024 at 7:39 am said:

    Trump managed to break his contrasting message through even in the NYT:

    4 Presidents, 2 Events and a Preview of Campaign Clashes to Come

    President Biden raised $25 million at a Radio City Music Hall event, adding to his huge cash edge, after Donald Trump pushed his law-and-order message at a wake for a police officer killed on duty.

    By Lisa Lerer
    March 28, 2024

    The epicenter of the presidential campaign shifted to New York on Thursday, as the incumbent president and three of his predecessors descended on the area for dueling events that illustrated the kinds of political clashes that could come to define the general election.

    For Democrats, it was a high-profile, celebrity-studded fund-raiser for President Biden in Manhattan. On Long Island, former President Donald J. Trump attended a wake for a New York City officer who was killed during a traffic stop on Monday. Together, the day’s events struck an unusual contrast in a general election campaign that has so far been largely defined by appearances in courtrooms and at small, invitation-only events.

    https://archive.ph/ShfkX

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