US Economy and Credit Markets Ended June 3, 2022
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Treasury yields rose significantly over the course of the week as expectations for 50 basis point rate hikes during the next four Federal Reserve meetings increased. Investors have been looking for signs that the Fed may scale back the pace of rate hikes to only 25 basis points later in the year, however, statements from Fed officials are dashing those hopes. Treasury yields rose significantly on Tuesday and Wednesday as Fed Governor Christopher Waller said that until he sees signs that inflation is coming down he will support 50 basis point rate hikes. St. Louis Fed President James Bullard said that the Fed is "on the precipice of losing control of inflation expectations" while San Francisco Fed President Mary Daly said that the Fed should not pause until the target rate is about 2.5%. Fed Vice Chair Lael Brainard doesn't support pausing rate hikes in September, while Cleveland Fed President Loretta Mester said that 50 basis point rate hikes are still possible in that month. Yields remained flat on Thursday before rising moderately again on Friday as the Change in Nonfarm payrolls was 390k, compared to consensus expectations of 318k.  This led investors to believe that the economy is still running hot and that the Fed would still use significant rate hikes to curb inflation. The market implied probability of a 50 basis point rate hike rose to 100% for each of the June and July meetings, while the same probability for the September meeting rose from 43% at the start of the week to 67% by the end of the week. Major economic reports (related consensus forecasts, prior data) for the upcoming week include Tuesday: April Trade Balance (-$89.5b, -$109.8b); Wednesday: June 3 MBA Mortgage Applications (n/a, -2.3%), April Final Wholesale Inventories MoM (2.1%, 2.1%); Thursday: June 4 Initial Jobless Claims (206k, 200k); Friday: May CPI MoM (0.7%, 0.3%), June Prelim. U. of Mich. Sentiment (58.4, 58.4).
Posted on Monday, June 6, 2022 @ 8:09 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.