KFVG - Rising Treasury Yields Falling Oil Prices And Hawkish Talk From The Fed

2024-04-24 12:30:00 ET

Summary

• Last week brought hawkish remarks from a cast of Federal Open Market Committee members.
• I still believe a US rate cut in June and a total of three cuts for the year are very real possibilities, but markets need to see more data.
• Prices for West Texas Intermediate crude oil fell last week from recent highs despite tensions in the Middle East.

A rising 10-year US Treasury yield, falling oil prices, eurozone disinflation, and some strong US economic data top my list of notable items impacting markets and investors over the past week. Here’s what I’m watching at the moment, including talk from central bankers about interest rates.

Hawkish talk grows louder from US central bankers

Last week, the 10-year US Treasury yield rose to levels not seen since last November. ¹ The catalyst was the higher-than-expected US Consumer Price Index (CPI) print several weeks ago, which caused markets to change their collective mind about Federal Reserve (Fed) policy this year. That view was reinforced by last week’s retail sales report, which rose well above expectations ² , as well as hawkish Fed speak from a cast of Federal Open Market Committee members. A few highlights from the past week:

• From Fed Vice Chair Philip Jefferson: “…if incoming data suggest that inflation is more persistent than I currently expect it to be, it will be appropriate to hold in place the current restrictive stance of policy for longer. I am fully committed to getting inflation back to 2%.” ³
• From Fed Chair Jay Powell: “The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence. Right now, given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us. If higher inflation does persist, we can maintain the current level of restriction for as long as needed. ” ⁴
• From New York Fed President John Williams: “We’ve got interest rates in a place that is moving us gradually to our goals, so I definitely don’t feel the urgency to cut interest rates.” ⁵
• From the Federal Reserve Financial Stability Report released last week: “The risk of persistent inflationary pressures leading to a more restrictive than expected monetary policy stance remained the most frequently cited risk, mentioned by nearly three-fourths of survey participants. The share of survey participants mentioning policy uncertainty as a risk to the financial system stood at just under two-thirds, significantly higher than in the October report.” ⁶

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