Rates Fall Despite Hawkish FOMC Minutes

Rates hold near 4-month high after FOMC minutes. Treasury yields grinded lower throughout the morning, with the 2-year yield reaching a low of 4.65% before jumping higher to 4.69% after FOMC minutes were released at 2 PM. The 10-year yield followed a similar path, bottoming out at 3.89% before finishing the session at 3.92%. Elsewhere, equities were mixed on the day, with the NASDAQ Composite gaining .13% and the S&P 500 declining .16%

Fed Minutes reiterate need for further hikes. Minutes from the February FOMC meeting released today echoed recent Fedspeak that doubled down on the need for continued rate hikes. Participants believed a restrictive stance would need to be maintained “until the incoming data provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time.” Some felt a 50bp hike was appropriate at the meeting, more than the 25bp hike that materialized. In addition, some noted that if policy isn’t tight enough going forward, it could stall recent progress on moderating inflation pressures. On the economy, participants noted that hikes have impacted interest-rate-sensitive sectors of the economy, and believe that real GDP growth will slow in 2023. Participants believed that a period of below-trend growth in real GDP would be needed to bring inflation down. There was disagreement among the group on the topic of a recession in 2023, with some believing a soft landing remains possible, while others noted an elevated probability of a downturn during the year.

Day ahead. Data will be prevalent throughout the morning, including the Chicago Fed National Activity Index and initial jobless claims at 8:30 AM ET. PCE prices are also slated for release at 8:30 AM, a preview of Friday’s more anticipated PCE data. Fed member Raphael Bostic will make public comments at 10:50 AM.