Fed Stays on Hawkish Course for Rate Hikes

Rates climb modestly on the day despite hawkish Powell. Swap rates and Treasury yields ended the day higher after Fed Chair Jerome Powell pushed back against the idea that the Fed would soon reverse course from their aggressive rate hikes. Powell stated that a “restrictive policy stance for some time” will be needed to calm inflation, adding that restoring inflation to the 2% target is the central bank’s main goal. The 10-year yield rose by 1.5 bps to finish the week at 3.04%, a moderate gain for a choppy day of movement. 

Consumer spending and PCE price index data show signs of decelerating inflation. Personal spending in the U.S. increased a mere 0.1% MoM in July, below forecasts of 0.4% and far less severe than the 1% level reported in June. This is the lowest level reported so far this year, with a decline in spending for energy goods the main catalyst. Elsewhere, the personal consumption expenditure price index fell 0.1% MoM in July, largely contrasting the 1% level in June that was the largest increase we have seen since 2005.

Week ahead. There will be substantial Fed speakers with Richmond Fed President Thomas Barkin, Fed Vice Chair Lael Brainard, and New York Fed President John Williams all set to make public comments early in the week, in addition to 3 others on Wednesday and Thursday. Data reports include Bill auctions, JOLTs job openings, EIA crude oil stock changes, and labor costs.