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The Power of Fed Speak

US TSYS
Rates finished broadly lower Tuesday, near second half lows after hawkish Fed rhetoric initially weighed heavily on the long end, yield curves steepening on net, 2s10s dis-inverting to +4.042 from -3.125 low. 30YY climbed from around 2.50% prior to Fed Gov Brainard to 2.596% session high.
  • In short, Fed Gov Brainard and KC Fed George delivered one-two punch to markets midmorning on the importance of keeping inflation contained by raising rates methodically and starting draw balance sheet draw down as soon as May.
  • Given Brainard's dovish credentials, she makes a notable mention of legendary hawk Fed Chair Paul Volcker in the first paragraph...then again, she also mentions Arthur Burns under whose leadership inflation soared.
  • On tightening: "It is of paramount importance to get inflation down... accordingly, the Committee will continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting."
  • Lacking on the data front, Wednesday focus on afternoon release of March FOMC minutes:
    • US Data/Speaker Calendar (prior, estimate)
    • Apr-6 0700 MBA Mortgage Applications (-6.8%, --)
    • Apr-6 0930 Philly Fed Harker on economic outlook
    • Apr-6 1400 March FOMC minutes
  • The 2-Yr yield is up 8bps at 2.5017%, 5-Yr is up 13.8bps at 2.6887%, 10-Yr is up 14.6bps at 2.5413%, and 30-Yr is up 11.1bps at 2.5674%.
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