FED STATEMENT AT 2:00 P.M.

The FOMC will make a statement at 2:00 P.M. How will it affect psychology? No change in interest rates is expected.
Yesterday a broad gauge of labor costs that is closely watched by the Federal Reserve accelerated in the first quarter by more than forecast. The Employment Cost Index (ECI), which measures wages and benefits, increased 1.2%, the most in a year, after rising 0.9% at the end of the year. The advance exceeded all projections in a Bloomberg survey.
Treasuries across the spectrum sold off on the data.
Will the Committee comment about the ECI and cost push (wage inflation), partially the result of bureaucratic interference legislating higher wages, which will cause higher prices in a vicious feedback loop? The last time the economy experienced cost push inflation was in the late 1970s and it took dramatic monetary policy to break the negative cycle.
Will the Fed also comment about upcoming Treasury issuances? It is highly anticipated the Treasury will announce today how it intends to borrow $243 billion in Q2 and $847 billion in the Q3. Both estimates were above the previous estimates.
It is highly anticipated the Treasury will issue short term bills that mature in less than a year rather than notes that have coupons and a longer maturity.
The distinction is important. The Treasury has increased its issuance of bills over the last 18 months, and the percentage of debt outstanding in short term bills exceeds the historical range.
Money market funds have been purchasing these bills in vast quantities offering liquidity to the Treasury. Moreover, money markets are not permitted to buy coupons.
It is widely believed that the Treasury will be forced to change its allocation which will impact liquidity and perhaps force an end of quantitative tightening (QT).
Nominally changing topics, because of rising interest rates and greater than expected inflation that ushered in the belief the Fed will keep rates higher for longer than expected, equities had their worst month in 2024. CNBC reported it was the worst month since September 2022.
Is this a one-off event of the start of a trend?
A major variable for the answer to this question is the path of inflation and monetary policy.
For what it is worth department, Bloomberg commented the mortgage YTD returns are second worst in fifty years. Ouch!
After yesterday’s close, AMZN posted results that generally exceeded expectations but shares are essentially unchanged.
Also released today is the top tier JOLTS Job openings and the ISM.
Last night the foreign markets were down. London was down 0.01%, Paris down 0.99% and Frankfurt down 1.03%. China was down 0.26%, Japan down 0.34% and Hang Seng up 0.09%.
Dow and NASDAQ futures are down 0.25% and 0.70% ahead of the outcome of the FOMC meeting, one that is expected to have a hawkish narrative. The 10-year is off 1/32 to yield 4.69%.