June FOMC Minutes Pull Rates Lower

Rates continue to decline after the June FOMC minutes release

Treasury yields and swap rates rallied for a second day after the June FOMC minutes highlighted the Fed’s uncertainty regarding inflationary risks and its timeline for tapering its asset purchases – the 10-year UST yield closed 3 bps lower at 1.32%, a level not seen since February.  Major US equity indices ended in the green – the S&P 500 and DJIA both increased 0.3%, while the Nasdaq increased less than 0.1%.

FOMC minutes show Fed is still waiting until “substantial further progress” is made before tapering its asset purchases

The minutes from the June meeting noted, “Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings.”  While officials continue to believe the recent rise in inflation to be transitory, thirteen out of eighteen officials “judged that the risks to their inflation projections were tilted to the upside.”  Officials forecast that input and labor shortages will drive prices higher next year; in response, seven officials projected the need to raise rates next year instead of in 2023.  Despite their uncertainty, the minutes noted that officials “judged that the economic outlook had continued to improve and that the most negative effects of the pandemic on the economy most likely had occurred.”

US job openings rose to a record high in May

According to the JOLTS data, job openings rose for a fifth consecutive month from a revised 9.193 million in April to 9.209 million in May.  Quits, which had hit a record high in April, declined from 3.99 million to 3.57, while the layoff rate fell to an all-time low of 0.9%.  The June jobs report revealed the US added the most payrolls since last August, but the unchanged labor force participation rate indicates that there continues to be a shortage of workers.