Stocks fell due to a hot PPI report, and an unexpected drop in initial jobless claims. Investors began to expect more Fed tightening. This week was a shock to the disinflation process. Most data suggests that the economy is much stronger than Wall Street expected. Manufacturing and housing are still in a recession, but the rest of the economy isn’t looking too bad.
The Fed’s Loretta Mester also helped send Treasury yields higher after saying she saw a ‘compelling’ case for a half-point rate rise at the last FOMC meeting. Hot PPI data, hawkish Fed talk and hot PPI data helped to push the 10-year Treasury yield up to its highest point this year.
Fed
Fed’s Mester sees inflation reaching 2% in 2025, which signals they have a lot more work to do to bring inflation down. Mester made a strong case for a half point rate increase at their last meeting. This means that the market shouldn’t expect the Fed not to keep the Fed on cruise control with quarter-point hikes. Her repeated assertion that rates must rise above 5% for some time and keep them there is now the consensus view. It should be clear that March’s dot plots will be significantly higher. While she isn’t a vote-taker, her comments suggest that they could do more given…
