Rates Rise After Several Fed Officials Offer Hawkish Commentary

Short end of the curve rises following Fed commentary. The yield curve held within a tight range for the majority of today’s trading session. The largest movement was seen in short-term rates, as the 2-year UST yield rose 3bps on the back of hawkish commentary from Fed presidents. In energy markets, crude oil prices climbed today after Ukraine reported overnight Russian ballistic missile attacks, which follows Ukraine’s recent use of UK and USA-supplied artillery.  WTI crude (+1.79%) is now above $70 per barrel, while Brent (+2.10%) surpassed $74 per barrel.

Another wave of Fed speak touches on rates and inflation. Fed President John Williams said today that even though inflation has declined and economic conditions remain strong, the Fed is “not quite there” on reaching their 2% target. He still expects that “it will be appropriate over time to bring the fed-funds rate down closer to more-normal or neutral levels” and added that he expects PCE inflation to land at 2.25% in 2024. Fed President Tom Barkin also expects inflation to continue dropping, though he thinks the U.S. is more vulnerable to “cost shocks on the inflation side, whether they be wage-[related] or otherwise” than in years past. Fed President Austan Goolsbee said that he supports more rate cuts, but also said, “…it may make sense to slow the pace…”

Jobless claims data paints a cloudy picture of the labor market. Applications for unemployment benefits totaled 213k the week that ended November 16^th, the lowest level since April and 7k below the median forecast. On the contrary, the number of individuals who continue to receive unemployment benefits jumped to a three year high of 1908k, well above the 1880k forecast. The unemployment rate has remained at low levels this year, though a jump from 4.1% to 4.3% in July caused significant concerns about a broader labor market slowdown. While the unemployment rate has gradually slowed to 4.1% since July, last month’s nonfarm payrolls figures were 88k below forecasts.