More Rate Hike Momentum

Hawkish Fed commentary pushes rates higher. Swap rates and Treasury yields rose across the curve after Fed minutes revealed continued support for additional rate hikes. Futures are currently pricing in at least one 25bp hike by the end of November, with cuts seen as more likely thereafter. A durable goods orders beat also contributed to the UST sell-off, the MoM level coming in at 1.8% in May, surpassing the forecast of 1.7%. The 2-year yield rose 1bp to 4.95% while the 10-year yield jumped 8bps higher to 3.93%.

Some FOMC members disagreed with June pause. Today’s June FOMC meeting minutes showed that while the committee was portrayed as unanimous in their decision to pause rate hikes, some members would have preferred a 25bp hike. The minutes also showed that “almost all” policymakers agreed that more tightening will likely be needed this year, reinforcing recent Fed commentary such as Chair Powell’s comments at a conference in Madrid last week, where he said, “Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go.” The minutes also shed light on members’ economic outlooks; members noted economic activity has expanded at a moderate pace, job gains have been robust, unemployment has remained low, and inflation has been elevated. They commented that tighter household credit conditions are likely to weigh on economic activity and inflation, and they agreed that the U.S. banking system remains sound and resilient. On the banking sector, they did point out that credit conditions will continue to tighten because of banking-sector stress earlier this year, but the extent to which it will weigh on economic conditions remains uncertain.

Day ahead. ISM Services PMI and JOLTs job openings figures will headline the session at 10 AM. Dallas Fed President Lorie Logan will make public comments at 8:45 AM.