Bond market investors are analyzing Federal Reserve Chair Jerome Powell's recent testimony before Congress, which hinted at potential rate cuts in the coming months. Powell suggested that the current policy rate may have peaked, opening the possibility for rate cuts later in the year and possibly as soon as June. His insight on potential rate cuts, economic growth, and the absence of an imminent recession helps guide investors’ expectations amid market uncertainties.
In February, despite robust hiring, the US unemployment rate climbed 0.2% to a two-year high of 3.9%, signaling a resilient, yet cooling labor market. Nonfarm payrolls increased 275,000 last month, but a combined downward revision of 167,000 to the prior two months suggests a gradual downshift in the growth of the labor market. Job openings remained high in January, totaling 8.86 million, but fewer people voluntarily quit their jobs, indicating lower confidence in finding better opportunities.
In January, US factory orders fell 3.6% due to reduced demand for commercial aircraft, while durable goods orders dropped 6.1%, weighed down by transportation equipment. However, orders for computers and electronics rose.
US consumer borrowing exceeded expectations in January, reaching a record $5.04 trillion, driven by a significant rise in non-revolving credit. Household wealth in the US hit a record high in 2023, growing by $11.6 trillion to $156.2 trillion, largely due to surges in the stock market and home values.
Chair Powell's remarks to Congress about potential rate cuts this year led to a decline in yields. The 2-year US Treasury yield dropped 0.08% to 4.45%, while the 10-year yield decreased 0.10% to 4.08%. Market participants anticipate rate cuts of around 1.00% in 2024, with the highest likelihood indicating the first 0.25% cut to occur at the June 12, 2024, meeting of the Federal Open Market Committee (FOMC).
Investors will closely watch inflation data next week, especially the Consumer Price Index (CPI) and Producer Price Index (PPI), to grasp current inflation trends. These figures will heavily impact the Federal Reserve's monetary policy decision when the FOMC meets on March 20, 2024. Chandler predicts a loosening of monetary policy around mid-2024 as inflation and economic growth slow, although it is unlikely future cuts will be announced at the upcoming FOMC meeting on March 20, 2024.
NFIB Small Business Optimism Index, Consumer Price Index (CPI), Retail Sales, Producer Price Index (PPI), Empire Manufacturing, Industrial Production, University of Michigan Sentiment index
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