Last week we saw very strong U.S. Retail Sales numbers that reflected an increase of 0.7% for the month of March, much higher than the forecast of 0.3%. That piece of data was just the latest in a recent string of very hot economic data. In turn, market participants have pushed hopes of rate cuts back to July or September.  The futures markets have drastically pared back bets on the amount of rate cuts that will be made in 2024 to a total of 50 basis points of cuts, which is down sharply from 150 basis points at the beginning of the year.  Recent commentary from the Fed suggests that they are in no hurry to cut rates and that rates may stay higher for longer. In fact, they have not ruled out the possibility of future rate hikes if inflation remains persistent and economic data remains strong. Fed Chair Powell said, “The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence. Last year, rebounding supply supported U.S. growth in spending and also employment, alongside a considerable decline in inflation. The more recent data show solid growth and continued strength in the labor market, but also a lack of further progress so far this year on returning to our 2 percent inflation goal.”

 

This week there are a few important data releases with Q1 GDP to be released Thursday and the next round of PCE data, the Fed’s preferred inflation measure, scheduled for Friday. If GDP comes in hotter than expectations, and if the PCE data shows that inflation has not eased over the last month, then there is risk that we see rates spike again later this week.  

 

Today rates are generally flat compared to Friday’s close and the 10 year Treasury is also flat at 4.61%. 

 

Have a great week!