Daily Market Color

Fed Officials Suggest Rate Cuts May be Delayed

Hawkish Fed commentary drives rates higher. Fed Presidents Williams, Kashkari, and Bostic headlined today as they offered hawkish commentary on rate cuts. Rates closed 3-6bps higher as a result, while strong Philadelphia Fed data (15.5 vs. the 2.0 forecast) contributed as well. The 2y UST yield closed just under 5% while the belly of the yield curve is in between 4.60%-4.80%. Meanwhile, the S&P 500 dropped (-0.22%) for the fifth straight session, its longest drought since October. 

Fed President John Williams leaves door open for another rate hike. New York Fed President Williams said at a conference today that he doesn’t “feel urgency to cut interest rates” and even left the door open for more hikes, saying, “if the data are telling us that we would need higher interest rates to achieve our goals, then we would obviously want to do that.” Minneapolis Fed President Kashkari echoed a similar sentiment, saying that given recent inflation surprises, it would “potentially” be appropriate to hold rates steady this year.

Bank reserves at the Fed decline the most since 2022. US Bank reserves at the Fed dropped by $286B in the week that ended April 17th, the largest such decline since April 2022. Reserves now total $3.33T from $3.62T the week prior. The decline could play a factor in how the Fed decides to manage its shrinking balance sheet. Last week’s FOMC minutes showed that most policy voters favored a slowdown in the pace of quantitative tightening, so any continued reserve declines could increase urgency.

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