Rates Turn Higher Ahead of (Virtual) Jackson Hole Symposium

Taper talk drives rates higher

This week’s focus centered around the labor market recovery, inflation expectations, and the Fed’s timeline to end asset purchases.  The July FOMC minutes had signaled tapering could start sooner than expected, but today’s comments from one of the more hawkish Fed officials showed some wavering on early tapering.  All eyes will be on Fed Chair Jerome Powell’s speech at the Jackson Hole symposium next week (which was just announced to be virtual-only) for additional timing insights.  Treasury yields and swap rates ended the day 1-3 bps higher across the curve – the 10-year rose almost 2 bps to close at 1.26%.  Major US equity indices reversed the general trend for the week and closed in the green – the S&P 500, DJIA, and Nasdaq added 0.8%, 0.7%, and 1.2%, respectively.

Dallas Fed President Robert Kaplan thinks the delta variant could curb economic growth

In his interview earlier today, Dallas Fed President Kaplan commented the fast-spreading delta variant is “unfolding rapidly” and could threaten the US economic recovery.  While he believes the recent spread has not yet had “a material effect” on consumer activity, Kaplan believes “it is having an effect in delaying return to office, it’s affecting the ability to hire workers because of fear of infection,” and could eventually scale back production output.  Kaplan, one of the more hawkish Fed officials, said in his last interview he was in favor of announcing a plan to taper after the September FOMC meeting, but he is now much less certain.  If economic data over the next month points to economic growth, he will stick to his original perspective and support a tapering announcement.

COVID-19 cases spike, nearing levels not seen since last winter

According to the CDC, only 51.1% of the US population has been vaccinated and virus cases are on the rise again.  In the past two weeks, infections have climbed 47%, while fatalities are up a staggering 97%.  Daily caseloads are now back up to 50% of the levels from the pandemic peak, with 90% of new infections among children.  Breakthrough infections are threatening confidence in the vaccine, with three more vaccinated Senators testing positive today.  The national case count now stands at 37.5 million.