Countdown to Rate Liftoff Begins

  • The March FOMC meeting concludes this afternoon with a 25bps rate hike a foregone conclusion. As we mentioned on Monday, the real focus for investors will be in the forecast for further rate hikes this year, and the updated economic forecast with inflation and GDP key items of interest in the wake of the war in Ukraine.

 

  • The market is expecting, and pricing in seven hikes this year, but the Fed is unlikely to provide that in today’s updated Dot Plot. Right now it looks like three 25bps hikes by June then balance sheet run-off commences. An additional two or three hikes in the second half of 2022 are likely as inflation is probably not going to be showing signs of easing given the developing impact of the war on energy and food prices. We’ll be back in the afternoon with a summary of what the Fed did do, especially the outlook for the number and timing of future rate hikes.
  • In war news, some positive comments from the latest round of talks has put a bid back into risk assets and that has Treasuries on the back foot as we await the Fed. While we all want peace to break out across Ukraine, discussions that Russia may agree to Ukraine being a neutral country but with its armed forces has been the impetus behind the latest risk-on bid. There seems to be a lot of details still to be ironed out so put me in the “I’ll believe it when I see it” category.

 

  • This morning retail sales for February disappointed but upward revisions to January took a little of the sting out of the February numbers.  Sales ex- auto and gas were down -0.4% vs. 0.4% expected and 5.2% in January. The retail sales control group—a direct feed into GDP—fell -1.2% vs. 0.3% expected and 6.7% the prior month.

 

  • While one month does not a trend make, we did ponder on Monday whether the slide in consumer sentiment would start to show in softer consumption numbers. It could partly be those sour moods, but also after filling the gas tank and getting groceries, the dollars left for discretionary items just aren’t there like before. In any event, this series and the personal income and spending numbers are two reports to keep an eye on as we move through first half of the year and assess the health of the consumer.
Source: Bloomberg

 


 

Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 1.88 2.13 2.24 2.41 2.69 3.15
0.50 1.87 2.10 2.18 2.30 2.55 3.04
1.00 1.86 2.07 2.15 2.26 2.45 2.91
2.00 2.06 2.09 2.18 2.34 NA
3.00 2.13 2.28 NA
4.00 2.23 NA
5.00 2.19 NA
10.00 NA

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Tags: Published: 03/16/22 by Thomas R. Fitzgerald