Fed Speakers Downplay Recession Odds

Bank earnings and Fedspeak occupy markets. Major equity indices ended the day roughly flat as markets continued to digest large bank earnings. Goldman Sachs stock fell, while Bank of America stock rose after an earnings beat. Yields were down across most of the curve, but the policy sensitive 2-year rate increased slightly ending the day at ~4.20% on hawkish commentary from the Fed’s Bostic and Bullard.

Today’s Fed speakers favor more hikes. Fed President Bostic said he favors one more rate hike, and then holding rates above 5% for a time to quell continued inflation. He stated, “There is still more work to be done, and I am ready to do it.” Fed President Bullard offered a more hawkish opinion, saying that he favors hiking to a 5.5% – 5.75% range. Interestingly, both downplayed the idea of a recession, with Bostic saying that “the acute tensions seem to be subsiding” and noting positive updates from regional and community banks in the Southeast that have seen less deposit outflows recently. These comments come as the median weekly earnings of full-time workers increased 6.1% in 1Q23 compared to 1Q22, faster than inflation and adding fuel to a potential Fed hike.

Day ahead. A relatively quiet day for data releases will be headlined by the Fed’s Beige Book at 2:00 PM EST. Also look out for MBA Mortgage Application data at 7:00 AM EST.