Treasury Yields Rise Ahead of FOMC Meeting

Rates rise ahead of FOMC meeting

Wednesday’s FOMC announcement is the focal point of the week.  The Fed is expected to leave rates anchored near zero, though most are focused on the central bank’s comments on inflation.  While the Fed remains firm in its outcomes-based approach, many officials have indicated they would like to begin tapering discussions sooner rather than later.  Ahead of the meeting, Treasury yields and swap rates climbed on the day, rising 1-5 bps off recent lows.  Equity indices were mixed – the S&P 500 and Nasdaq rose to record highs, up 0.2% and 0.7%, respectively, while the DJIA fell 0.3%.

May New York Fed Survey shows consumers expect inflation to rise to 4%

Rising input costs, labor shortages, and skyrocketing home prices pushed consumers’ expected level of inflation up to 4% from 3.4% in April, the highest on record for the report.  Consumers also expect food, rent, and gas prices to increase by 8%, 9.7%, and 10% respectively.  The report largely contradicts the Fed’s view that the recent uptick in price pressures is transitory, as consumers forecast inflation will still be elevated three years from now at 3.6%.

US crude oil prices hit a pandemic high

Earlier today, US crude prices rose to its highest since 2018 at $71.78/barrel.  Prices have nearly doubled since last October, with the recent rise sparked by OPEC+ and its allies increasing output on expectations demand will increase in the near future.  Last week, the International Energy Agency forecasted global oil demand will reach pre-pandemic levels by the end of next year and encouraged OPEC+ “open the taps“ in regard to production.

ECB to maintain pace of bond buying for the foreseeable future

When asked about the ECB’s timeline for tapering its 1.85 trillion euro pandemic emergency purchase programme (PEPP), President Christine Lagarde said, “It is far too early to debate these issues.”  PEPP is currently scheduled to last till March 31st, though many economists believe officials begin to discuss tapering in their September meeting.  Lagarde added, “We are at a turning point where, bearing in mind alternative (virus) variants, we are on that recovery path, heading firmly towards a return to the pre-COVID-19 level.”