Powell Clears the Way

Rates rise once again, bringing weekly move to 20+ bps. Swap rates and Treasury yields rose across the curve today, though they fell from intraday highs after Chair Powell’s dovish public comments. The 2-year yield rose just over 1bp to 4.27% while the 10-year yield rose ~3bps on the session, closing at 3.67%. Elsewhere, debt-ceiling negotiations hit a roadblock, with House Speaker McCarthy blaming the White House, saying “We’ve got to get movement by the White House and we don’t have any movement… So yeah, we’ve got to pause.” 

Chair Powell’s comments drive pausing-bets. In a speech at a Fed conference today, Chair Powell indicated that he is inclined to pause next month, following yesterday’s flurry of conflicting sentiment from other Fed officials. He said, “We’ve come a long way in policy tightening and the stance of policy is restrictive…” Traders pared their rate hike bets after the comments, with markets now pricing in a 78% chance of a pause at the June meeting. In contrast with other recent Fed speakers, Powell noted that economic headwinds stemming from banking failures are likely to “weigh on economic growth, hiring and inflation.”

Week ahead. Wednesday’s Fed Minutes and Friday’s PCE, personal spending, and personal income figures are the headlines. Fed non-voters Bullard, Barkin, Bostic, and Collins will make comments throughout the week. Fed voter Logan will make a statement on Tuesday.