Bryant Bank Market Update - January 4, 2024

Good morning, rates and rate expectations are ticking upward again today on better-than-expected labor market data, leading treasuries to sell off as traders trim their rate cut wagers.? Here’s where the benchmarks are now:

It was primarily softer inflation data that triggered Q4’s downward rate move, but let’s not forget that price stability is only one of the FOMC’s mandates.? The other is full employment, which they target by lowering interest rates.? Lower inflation only removes a barrier to lower interest rates; it doesn’t itself necessitate them.

This is important to understand because economic contraction and rapidly rising unemployment were assumed when CPI downside surprise sent yields lower last year.? But, if the US economy manages to avoid recession, a significant rise in unemployment is unlikely, and then there would no longer be any real impetus for rate cuts.?

This morning’s data releases showed jobless claims declined more than expected while private payrolls increased more than expected.? Alongside the improving outlook for a “soft landing,” a robust labor market dims the outlook for loosening monetary policy, causing bonds to sell off as rate expectations adjust higher.

We hope you have a great day!? Please let us know if there is anything we can be doing to better serve your needs.

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Quote of the Day:? “We are what we believe we are.”? --C.S. Lewis