Daily Market Color December 15, 2023Fed Commentary Pushes Back on Market Dovishness Williams’ policy outlook can’t stop the rally. Markets largely shrugged off Fed President Williams’ opinion that it is “premature” to be pricing in a March rate cut, despite yields initially climbing after the commentary. This week’s risk-on rally continued in force, with UST yields ending roughly flat on the short end of the curve, while the 30-year fell below 4% intraday and the 10-year broke below 4% for the first time since August. The NASDAQ ended at a record high for the first time in two years, and both the NASDAQ and S&P 500 notched a 7th straight week of gains. Fed speakers push back on rate-cutting expectations. Fed Presidents Williams and Bostic kicked off the post-blackout period by offering more hawkish views on the 2024 monetary policy outlook. Williams said, “we aren’t really talking about rate cuts,” and said that markets reacted “more strongly” than what policymakers showed in projections this week. Bostic had a more pointed view, saying he expects two rate cuts in 2024, in contrast with three expected based on the latest dot plot, but not until the third quarter. Weak global demand hurts German economic growth. The German central bank expects GDP to grow 0.4% in 2024, following a decline of 0.1% in 2023, according to forecasts published today. It said that lower export volumes, restrained consumer spending and higher financing costs contributed to the 2023 contraction, but it sees growth resuming starting in 2024 on the back of rebounding exports and more household consumption given a stable labor market. The new projections also show inflation declining more quickly than expected, from 6% in 2023 to 2.5% in 2025, but ECB President Lagarde continues to warn of possible inflationary tailwinds from rising wages and corporate profits.