Biden Touts Declining Inflation While Fedspeak Doubles Down on Hawkishness

Hawkish Fedspeak spurs risk-off session. Today Fed members John Williams, Neel Kashkari, and Christopher Waller reinforced their stance to the market that rates may need to stay higher for longer. Christopher Waller’s comments perfectly epitomized the sentiment, as he stated that “though we have made progress reducing inflation, I want to be clear today that the job is not done…it might be a long fight, with interest rates higher for longer than some are currently expecting.” Demand for bonds was boosted thereafter, with the 2-year and 10-year Treasury yields falling 6-8bps from their session highs to end at 4.42% and 3.61%, respectively. Equities were expectedly hurt by the commentary, with tech stocks taking the worst of the losses, as the NASDAQ Composite fell 1.68% on the day.

Inflation, economic progress among topics highlighted in State of the Union. In his remarks during the State of the Union address yesterday, President Biden noted that high inflation has begun to decline, placing the blame for inflation largely on global phenomena such as the pandemic and the war in Ukraine. He mentioned that gas and food prices have come down, with gas down $1.50 per gallon from the peak, and commented that inflation has declined each month over the past six while take home pay has increased. He also focused heavily on job creation, highlighting the lowest unemployment rate since 1969 driven by spending bills passed early in his tenure. Following the speech, President Biden took his messaging on the road, highlighting his position that the public stands to benefit from trillions of approved federal spending at a visit to the Laborers’ International Union of North America in Wisconsin. He stated, “The economy has grown at a solid clip…Folks, I hate to disappoint, but the Biden economic plan is working”.       

Day ahead. Michigan consumer sentiment for February will be released at 10 AM ET, which is expected to mark the third consecutive increase from the month prior. Fed voters Christopher Waller (hawk) and Patrick Harker (neutral) will make public comments at 12:30 PM and 4 PM, respectively.