Morning Report: FOMC minutes signals a slowdown in hikes

Vital Statistics:

 LastChange
S&P futures4,031-1.75
Oil (WTI)78.75-0.83
10 year government bond yield 3.74%
30 year fixed rate mortgage 6.56%

Stocks are flat this morning on no real news. Bonds and MBS are down.

The stock and bond markets close early today, and there is no economic data. It should be a quiet day in the markets overall.

The FOMC minutes didn’t have much in the way of impact on the markets. They basically said that inflation is still too high and that a sustained period of below-trend GDP growth would be helpful in re-setting inflationary expectations. On the labor market, the participants noted that labor shortages remain acute, and many companies are choosing not to lay off people.

The decision to hike 75 basis points was unanimous, and a “substantial majority” felt it would soon be appropriate to slow the pace of hikes. So that sounds like 50 basis points at the December meeting.

They did mention the issues in the UK Gilt market (it crashed) and discussed ways they could prevent the same thing from happening here.

The market reaction to the minutes was positive, however we have mostly given up those gains this morning.

The Biden Administration is trying to mediate a solution for a potential railway strike that would hit at the end of the year. The Administration helped negotiate a deal in September, however the union members voted against it. A railway strike would halt about 30% of cargo shipments, which would make the Fed’s job in fighting inflation harder. (Note the FOMC minutes didn’t discuss the railway issues).

Labor definitely has the upper hand in union negotiations these days, something we haven’t seen in 40 years.

Author: Brent Nyitray

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

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