- CPI is the hot topic on 2/12. The danger is that an elevated inflation reading and the news headlines it produces will add to inflation expectations. As we have mentioned in the past two weeks, inflation has already been ticking up amid all the discussions of tariffs. Yields will tick up based on the numbers produced by CPI (equities are also lower).
- FED President of Cleveland (Beth Hammack) said it is appropriate to keep rates steady for “some time” while policymakers await further downward progress on inflation. The bottom line is that rates do not seem to be coming down anytime soon; some thought we would see a cut in March, but I suspect we will see cuts later in the year than in March.
- Powell indicated on 2/11 that the central bank does not need to rush to adjust rates, signaling that officials will continue to be patient before further lowering borrowing costs. They indicated that, with their policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a “hurry” to adjust rates.
- On the morning of 2/12, we pivoted from the US President calling for lower rates to inflation data that has spared analysts’ calls for higher rates. Today, 2/12, will shape up for the FED Debate based on Powell’s hearing on Capitol Hill. The so-called super-core measure of inflation, core services less housing, surged in January, posting its largest increase in a year. I suspect this is poised to erode future pricing for FED rate cuts.
- Post-CPI was released on 2/12; the market is pricing in one .25 cut, which they are calling for in December. I find it interesting how things change so quickly. Just three weeks ago, traders were calling for cuts (as mentioned) in March. Today’s CPI print is adding fuel to that fire. However, should we see lower prints in the following months, I suspect we will see changes in the anticipated rate cut timing yet again.
- On Monday, 02/10, the Chicago City Council’s finance committee approved the mayor’s proposal to sell 830MM of GO bonds. This issue came up a couple of days ago; there have been no discussions of refunds of existing General Obligation paper for the city of Chicago.
- US airports may turn to the MUNI market to finance new projects if federal funding for infrastructure is rolled back as part of President Trump’s push to cull government spending. Many facilities rely on federal grants to help fund renovations of aging infrastructure and were counting on the 14.5B earmark from the previous administration over the next 5-year period.
- Kashkari indicated that the US labor market had cooled but remained solid, and interest rates are “likely to decline modestly” in 2025. He indicated that we continue to have a good labor market; however, it is not as hot as it was a year or two ago.
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David Loesch
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Yield to call (YTC) is not indicative of total return; this yield is valid only if the security is called. Bonds may or may not be called, or be callable on multiple dates or, in other cases, called any date following the first call date, so yield to call is based on the earliest stated call date. Discounted bonds may be subject to capital gains tax. Bonds may be subject to OID (Original Issue Discount). Prices and availability may change at anytime without notice.
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