Yields climb on strong data, FOMC minutes. Treasury yields rose across the curve today, with the move primarily driven by better-than-expected durable goods data and industrial production that saw the fastest growth pace in nearly a year. Hawkish January FOMC meeting minutes also contributed, with some officials open to rate hikes if inflation remains elevated. Yields closed 2-3 bps higher across the curve, with the 2-year yield at 3.46% and the 10-year yield at 4.08%. Meanwhile, equities rallied as the strong economic data soothed AI jitters, with the S&P 500 and NASDAQ up 0.56% and 0.78%, respectively.
FOMC Minutes show surprisingly hawkish tone. The January FOMC meeting minutes were released today and showed hesitation to cut rates further. The minutes read, “The vast majority of participants judged that downside risks to employment had moderated in recent months while the risk of more persistent inflation remained.” Some officials see it appropriate to hold rates steady “for some time” as they continue to evaluate additional data, while “several participants” see the “possibility that upward adjustments to the target range” could be needed if inflation remains elevated. However, officials remain data-dependent, and many remain open to further rate cuts if inflation declines as anticipated. In January, the Fed voted 10-2 to hold the benchmark rate steady, with Governors Waller and Miran dissenting in favor of a 25 bp rate cut.
US industrial production increases by the most in nearly a year. Industrial production increased 0.7% in January, the largest gain in almost a year and above estimates of a 0.4% increase. The advance was driven by broad growth in manufacturing as well as an uptick in utility output. Capacity utilization, a measure of potential factory output being used, climbed to 75.6%, the highest level since September. Manufacturing output also rose 0.6%, the most since last February and a hopeful sign of recovery for US manufacturing activity. In a separate release today, December durable goods order fell by 1.4%, however the decline was smaller than estimates forecasting a 2.0% drop. Additionally, durable goods orders increased for communication equipment, computers, metals, and electrical equipment and machinery.
