Morning Report: Loretta Mester sees 50 basis point hikes all summer long

Vital Statistics:

 LastChange
S&P futures4,144.25
Oil (WTI)119.550.64
10 year government bond yield 2.98%
30 year fixed rate mortgage 5.42%

Stocks are higher this morning as China’s COVID crisis seems to be ending. Bonds and MBS are down.

The week after the jobs report is generally data-light, and we will also have no Fed-Speak as this is the quiet period ahead of the June FOMC meeting. The biggest economic report will be the Consumer Price Index on Friday. While the year-over-year numbers will grab the headlines, investors will be focused mainly on the month-over-month numbers, to see if inflation is beginning to moderate.

The Cleveland Fed President Loretta Mester said she hasn’t seen evidence that inflation has peaked. “I think the Fed has shown that we’re in the process of recalibrating our policy to get inflation back down to our 2% goal. That’s the job before us,” Mester said in a live interview on CNBC’s “The Exchange. I don’t want to declare victory on inflation before I see really compelling evidence that our actions are beginning to do the work in bringing down demand in better balance with aggregate supply,” she added.

She also supports the idea of the Fed raising the Fed Funds rate 50 basis points at the next two meetings. He bias is towards hiking another 50 in September, unless economic circumstances change.

“I’m going to come into the September meeting, if I don’t see compelling evidence [that inflation is cooling], I could easily be at 50 basis points in that meeting as well,” she said. “There’s no reason we have to make the decision today. But my starting point will be do we need to do another 50 or not, have I seen compelling evidence that inflation is on the downward trajectory. Then maybe we can go 25. I’m not in that camp that we think we stop in September.”

FWIW, the Fed Funds futures have a 60% chance of another 50 basis points in September

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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