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Fed Rhetoric Cools Slightly

US TSYS
  • Treasury futures holding firmer after the bell as markets inched off post-jobs related lows. Markets have come a long way in unwinding rate cut pricing since Friday's blowout job gains for January, while today saw a slight softening of Fed rhetoric.
  • Initial muted react to Cleveland Fed Mester economic outlook comments: "POLICY IS IN A GOOD PLACE, MISTAKE TO CUT RATE TOO SOON .. CAN'T COUNT AS MUCH ON SUPPLY SIDE TO LOWER INFLATION" was largely in-line with Chairman Powell comments.
  • Addressing the media later in the afternoon, Mester reiterated the likelihood of three rate cuts in 2024. MN Fed President Kashkari also sounded more placative of late.
  • In turn, projected rate cut pricing gained slightly by Tuesday's close: March 2024 chance of 25bp rate cut currently -20.3% vs. -17.4% this morning w/ cumulative of -5.1bp at 5.270%, May 2024 at -61.2% vs. -57% w/ cumulative -20.4bp at 5.118%, while June 2024 back to -89.2% from -83.8% (105% pre-NFP for comparison) w/ cumulative -42.7bp at 4.895%. Fed terminal at 5.325% in Feb'24.
  • Wednesday Data Calendar: Continued Focus on Fed Speakers, 10Y Sale
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