More, or Less? More, or Less?\images\insights\article\mmdt-weekly-Small.jpg April 28 2023 April 24 2023

More, or Less?

Weekly Bond Commentary

Published April 24 2023

The market has grown comfortable with the idea the Federal Reserve will raise its federal funds rate by 0.25% at its next meeting on May 3. What is not certain is whether policymakers will be done at that point or whether they will need to keep up the fight against inflation. Incoming economic data could be the final arbiter.

Reports released last week were mixed, as housing starts were stronger than expected, led by a 2.7% rise in single-family starts. Weekly jobless claims continued their slow rise since January, though they still remain near historically low levels. The S&P Global Purchasing Managers Index for April showed a surprising increase in economic activity in both manufacturing and services.  Especially troublingly for the Fed, both input costs and output prices rose, thanks to more accommodative demand conditions. The rate of job creation accelerated, as growth in private sector employment was the quickest since July 2022. Both goods producers and service providers had success expanding capacity. Separately, inflation in the U.K. was higher than expected, and China’s first quarter GDP rose 4.5%, above expectations, raising hope (or concern, depending on perspective) that a recession is not a foregone conclusion. 

Against this developing backdrop, several Fed speakers expressed concern about stubborn inflation but also commented that the recent banking turmoil may have tightened financial conditions, doing some of their work for them. What is clear is that the economic situation is fluid. It simply is neither possible to know the future path of interest rates nor the level of the peak fed funds rate. Perhaps policymakers will know it when they see it.

Tags Markets/Economy . Fixed Income .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

The Global PMI is compiled by Markit Economics and is derived from surveys covering more than 11,000 purchasing executives in 26 countries.

Gross Domestic Product (GDP) is a broad measure of the economy that measures the retail value of goods and services produced in a country.

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