Data and Fedspeak Drive Rates Down

U.S. growth concerns, Fed commentary push rates lower. Swap rates and Treasury yields plummeted after opening significantly higher, as the long end of the curve closed ~15bps lower from intraday highs. The bull steepening trading activity this afternoon was spurred by weak GDP and personal consumption figures, while 2023 policy voter Goolsbee added fuel to the fire with dovish warnings of over-tightening. Tomorrow’s PCE could provoke significant rate moves, especially as lingering energy cost fears could reveal themselves further.

GDP, personal consumption show signs of slowing. Today’s data fueled concerns of slowing U.S. growth, as annualized QoQ GDP (2.1% vs. 2.2%) and the GDP Price Index (1.7% vs. 2.0%) were lower than expected, while personal consumption (0.8% vs. 1.7%) came in at its lowest level in a year. Meanwhile, core QoQ PCE remained flat at 3.7%. The impact of rising energy costs is evident, as the headline figures are expected to rise from July and core figures are generally projected to slow.

Chair Powell steers clear of rates and economic outlook. In his town hall today, Chair Powell said that the Fed’s ability to influence the economy will depend on if “people understand what we are saying,” a nod to the impact that consumer expectations have on the economic outlook. Chicago Fed President Goolsbee also spoke today with a different focus. His comments highlighted that policymakers should be careful about the weight they assign to job losses to slow inflation, which he believes could cause the Fed to over-hike. Instead, he says the Fed should focus on how components of core inflation are slowing and monitor productivity growth.