Yesterday took the market volatility of 2022 a notch or two higher. We started the day with a firmer than expected January CPI report, which as we noted yesterday, was fairly broad-based across the various categories. A sell off in Treasuries ensued, but just before the 30-year bond auction, St. Louis Fed President James Bullard decided it was a good time to go on Bloomberg News and suggest that not only did he think a 50 basis point March rate hike is necessary, but also that the Fed should be considering inter-meeting hikes and asset sales. The resulting reaction in both bonds and stocks was severe. The 2-year Treasury note yield ended the day up 21 bps to 1.58% but touched as high as 1.64% later in the afternoon as the market now prices a near 100% probability of a 50 bps March hike.

Bullard has been one of the more hawkish Fed leaders for a while, and he’s never been shy to make bold public comments. For historical perspective, the Fed hasn’t announced an emergency inter-meeting rate hike since 1994 and doing so prior to the March meeting would be even more complicated (and risky) this time given the current QE tapering schedule. Powell and the centrists at the Fed probably weren’t overly enthusiastic with Bullard’s comments (and the timing of them), and last night Bloomberg released an article suggesting the Fed doesn’t currently favor a 50 bps hike or an emergency move, noting comments yesterday from the San Francisco and Richmond Fed bank presidents and perhaps also pushed by Fed leaders in Washington off the record. Treasury yields are 2-5 bps lower this morning but obviously still well above Wednesday’s closing levels. Equity futures are essentially flat at the moment following yesterday’s 1.8% decline in the S&P 500.

Jason Haley
Chief Investment Officer