At the conclusion of the FOMC meeting, the Committee will update its interest rate forecasts. How will it differ from the one issued in December? Will the Fed acknowledge the uncertainties around inflation from tariffs, where it is still predominantly more bark than bite? Will the Federal Reserve increase the neutral rate from around 2% to 3%?
No change in monetary policy is expected, however depending upon the Committee’s statements, the market outlook could again change. At the time of this writing, almost 75 bps of easing is expected by year’s end.
It should again be noted that throughout this interest rate cycle, there has been a considerable difference between Federal Reserve anticipated policy and market expectations.
Speaking of expectations, based upon the University of Michigan Consumer Sentiment survey, consumers expect prices to rise at an annual rate of 3.9% over the next five to ten years, up 0.6% from the prior month and the highest in more than three decades.
Moreover, consumers see prices rising at an annual rate of 4.9% over the next years, up from 4.3%, and the highest since 2022.
This data had a large influence on overall consumer sentiment levels as the Michigan index fell to the lowest level since 2022. The data was lower than all published estimates.
Treasuries sold off across the curve as a major component of bond pricing is future inflationary expectations.
Equities, however, staged a moderate oversold advance, perhaps a partial relief rally centered upon the passing of a continuing budget resolution to keep the government open. The S & P 500 is, however, down four consecutive weeks, the longest stretch of declines in almost a year according to Bloomberg.
What will happen this week?
The economic calendar is comprised of the a fore mention FOMC meeting, retail sales, industrial production/capacity utilization, several housing statistics and import/export prices.
Last night the foreign markets were up. London was up 0.11%, Paris up 0.25% and Frankfurt up 0.1%. China was up 0.19%, Japan up 0.93% and Hang Seng up 0.77%.
Futures are nominally lower for a myriad of reasons including this week’s FOMC meeting and tariffs. The 10-year is up 6/32 to yield 4.30%.
