Last week’s market consensus that the Fed would increase rates by 100 basis points at next week’s meeting has ebbed. Multiple Fed officials spoke last Friday, just before the traditional pre-meeting “quiet period” where they refrain from public comment. Each one indicated a 75 basis point increase was appropriate, clearly telegraphing their intent. Some officials feel that a big increase could damage the strong labor market. I guess that means that a 75 basis hike next week is “dovish”? With little economic data this week, treasuries are trading in a tight range. The 10-Year Treasury has been fluctuating between 2.90% – 3.10%, closing today at 3.02%. The yield curve inversion is holding with the 2-Year closing 21 basis points above the 10-Year.
Next week will provide much more direction as it is “action-packed” with: Consumer Confidence on Tuesday, Fed meeting and statement on Wednesday, Q2 GDP on Thursday, and the all-important PCE report on Friday (the Fed’s preferred inflation gauge). The GDP report may show that we are in a recession now (defined as 2 consecutive quarters of negative GDP). Stay tuned….
By David R. Pascale, Jr. , Senior Vice President at George Smith Partners