It’s Blackout Time and Inflation is Still Red Hot

Rates rise after strong PMI data. Swap rates and Treasury yields rose to round out the week, the 2-year and 10-year yields rising ~4bps to 4.18% and 3.57%, respectively. The 2-year yield is now up ~16bps on the month, with over half of the rise coming this week. Strong PMI data contributed to the rise today, as U.S. business activity rose to nearly a one-year high. Elsewhere, equities gained but were near neutral, the S&P, DOW, and NASDAQ rising 0.07% – 0.11% on the day.

Fed officials voice support for more hikes ahead of the blackout period, qualified by credit outlook. Today, Fed President Mester said she favors hiking rates above 5%, but tempered her view by mentioning the impact of tighter credit conditions which have a similar cooling effect on the economy as rate hikes. Fed President Harker, a voter, said that additional tightening may be needed and expects that rates will hit appropriately high levels this year. He noted that he expects to see tighter economic conditions, but that the “full extent is still unclear.” Fed Governor Cook said that US inflation remains elevated and “broad based”, but as she assesses how high rates need to go, she believes the FOMC should take a meeting-by-meeting approach given recent bank failures. 

Week ahead. Next week’s schedule will be data-heavy, with PCE, personal income, and personal spending on Friday the highlights. There will be manufacturing, durable goods orders, GDP, and home sale figures released earlier in the week. The Fed blackout period commences tomorrow and will continue until the May FOMC decision is announced.