January 31, 2024
The day has come. There is big anticipation surrounding the QRA and the Fed meeting. First up, I don’t know what will happen. Many seem to think they do. Will there be a quid-pro-quo agreement between the Treasury and the Fed? A carrot-stick one-two punch?
Let’s zoom out. As for the QRA, much attention is being drawn to the decision, whereas nobody cared much about it historically (aside from dedicated bond traders). Increased attention makes me lean closer to it being a non-event rather than more than it should be.
Meanwhile, Jay has clearly set the stage during his December performance. The odds of a March Fed cut have now tapered down to around 35%, as monthly JOLTS job openings beat estimates for December yesterday. I think that is fair, given the overall macro trajectory. The most interesting aspect will be whether he kills March or wants to keep it alive, in which case we are really closer to pulling the first-rate cut buzzer, as a Taylor Rule approach would suggest. I opined on it on this week’s ATW.
Powell, along with other Fed officials, has, however, indicated limited urgency to cut rates so far, so it would be a surprise if he changes tunes today. Given the next Fed meeting is on March 20, where we also get a Summary of Economic Projections, Jay could wait till his Humphrey-Hawkins testimony towards the end of February/start of March to communicate more firmly that rate cuts are imminent.
Again, zooming out, does it matter whether they cut in March, May or June? As usual, the timing will be less important than the extent and duration of the upcoming easing cycle.
With what is ahead of us today, let’s take the current temperature of a few asset markets and highlight any changes the models have flagged since last Friday and Monday.
Last day of Dry January! I have made it unless Jay pulls a biggie, which would make me reconsider my options.
Now, let’s have a look at a few charts.