Treasury prices are lower this morning, unwinding some of yesterday’s post-Fed rally. The official statement was essentially unchanged, and as expected, the fed funds rate was increased by 25 bps. However, the markets were more focused on the updated SEP and press conference. In the SEP, the median FOMC participant forecast for the 2018, 2019, and long-run fed funds rate was unchanged from the September SEP (2020 forecast was slightly higher). Moreover, the 2018 GDP forecast was raised by 40 bps, and the projected unemployment rate was lowered by 20 bps. However, core inflation forecasts remained unchanged. Yesterday’s events were interpreted as dovish by the markets for a couple of reasons. First, Janet Yellen acknowledged in the press conference that some members accounted for fiscal reforms in their GDP calculations, but the fed funds projections were still held unchanged. Additionally, some market participants focused on the fact that there were two dissenting votes against the rate hike. Both of these observations seem to be a bit of a reach, which likely explains much of today’s reversal. The two dissenting voters (Kashkari and Evans) are known to be more dovish and had telegraphed such a decision in recent speeches. Secondly, if projecting three rate hikes in 2018 with no projected increase in inflation growth is considered dovish, we would hate to see what hawkish looks like.

Jason Haley
Managing Director, Investment Management Group

12/11JOLTS Job Openings6135599660936177
12/12NFIB Small Business Optimism104107.5103.8
12/12PPI Final Demand MoM0.30%0.40%0.40%
12/12PPI Ex Food and Energy MoM0.20%0.30%0.40%
12/12PPI Ex Food, Energy, Trade MoM0.20%0.40%0.20%
12/12PPI Final Demand YoY2.90%3.10%2.80%
12/12PPI Ex Food and Energy YoY2.40%2.40%2.40%
12/12PPI Ex Food, Energy, Trade YoY2.40%2.30%
12/12Monthly Budget Statement-$134.5b-$138.5b-$136.7b
12/13MBA Mortgage Applications-2.30%4.70%
12/13CPI MoM0.40%0.40%0.10%
12/13CPI Ex Food and Energy MoM0.20%0.10%0.20%
12/13CPI YoY2.20%2.20%2.00%
12/13CPI Ex Food and Energy YoY1.80%1.70%1.80%
12/13CPI Core Index SA253.932253.724253.428
12/13CPI Index NSA246.816246.669246.663
12/13Real Avg Weekly Earnings YoY0.80%0.40%0.30%
12/13Real Avg Hourly Earning YoY0.20%0.40%0.20%
12/13FOMC Rate Decision (Upper Bound)1.50%1.50%1.25%
12/13FOMC Rate Decision (Lower Bound)1.25%1.25%1.00%
12/14Initial Jobless Claims236k225k236k
12/14Continuing Claims1900k1886k1908k1913k
12/14Retail Sales Advance MoM0.30%0.80%0.20%0.50%
12/14Retail Sales Ex Auto MoM0.60%1.00%0.10%0.40%
12/14Retail Sales Ex Auto and Gas0.40%0.80%0.30%0.40%
12/14Retail Sales Control Group0.40%0.80%0.30%0.40%
12/14Import Price Index MoM0.70%0.70%0.20%0.10%
12/14Import Price Index ex Petroleum MoM0.10%0.10%0.10%
12/14Import Price Index YoY3.20%3.10%2.50%2.30%
12/14Export Price Index MoM0.30%0.50%0.00%0.10%
12/14Export Price Index YoY3.10%2.70%
12/14Bloomberg Dec. United States Economic Survey (Table)    
12/14Markit US Manufacturing PMI53.95553.9
12/14Markit US Services PMI54.752.454.5
12/14Markit US Composite PMI5354.5
12/14Bloomberg Consumer Comfort51.352.3
12/14Business Inventories-0.10%-0.10%0.00%
12/15Empire Manufacturing18.819.4
12/15Industrial Production MoM0.30%0.90%
12/15Capacity Utilization77.20%77.00%
12/15Manufacturing (SIC) Production0.30%1.30%
12/15Total Net TIC Flows-$51.3b
12/15Net Long-term TIC Flows$80.9b