Higher For Longer

Today’s Fed announcement was largely as expected: no rate hike, “data dependent,” and “higher for longer” communicated via the dots.  The direction of the change in the dot plot is no surprise, but the magnitude was.  The median Fed member moved their forecast up by 0.50% through both 2024 and 2025.  Granted, those forecasts have a poor track record of predicting the future, but they speak to the Fed’s will to continue hiking if the data remains resilient. Bonds held their ground reasonably well at first, but late day position squaring resulted in a break to new long term yield highs. 

Econ Data / Events

Fed Dot Plot Changes

 2023

5.625% (range 5.375% to 5.625%); prior 5.625%

2024 

5.125% (range 4.375% to 6.125%); prior 4.625

2025 

3.875% (range 2.625% to 5.625%); prior 3.375%

2026 

2.875% (range 2.375% to 4.875%)

Market Movement Recap

09:24 AM gradually but modestly stronger throughout the overnight session.  MBS up 6 ticks (.19). 10yr down 3.4bps at 4.329.

01:24 PM 10yr down 4.6bps, near best levels at 4.317.  MBS up 6 ticks (.19) again after some AM volatility.

02:05 PM Sharply weaker after Fed announcement.  MBS down 3 ticks (.09) and 10yr up to 4.359

03:22 PM Volatile 2-way trading since Fed.  Powell press conference is over.  MBS down 7 ticks during moments of illiquidity (-0.22) but only 1-2 ticks otherwise (0.03-0.06).  10yr down 1bp on the day at 4.353.

04:41 PM Weakest levels of the day.  MBS down 9 ticks (.28) and 10yr up 3.4bps at 4.397.