Dots and Powell Were Much Less Friendly Than Markets Expected

We knew the bond market was expecting a hawkish shift in the dot plot (the chart that shows each Fed member’s expectation for the Fed Funds Rate in the coming months/years), and while there is now easy way to know exactly how big the expected shift was, it was clearly not as big as the shift we actually saw!  The median dot moved from the low 3% range for the end of 2025 to just under 4%.  On top of that, Powell’s press conference offered no reprieve as he confirmed the Fed was entering a new policy-making phase marked by the possibility of pausing rate cuts and the reality that current rates are closer to neutral than previously believed. Bonds tanked immediately upon the release of the dots and then tanked some more as Powell began answering questions 30 minutes later.

Econ Data / Events

Housing Starts

1.289m vs 1.34m f’cast, 1.312m prev

Building Permits

1.505m vs 1.43m f’cast, 1.419m prev

Market Movement Recap

10:04 AM weaker overnight with Europe, but recovering in early domestic trading.  MBS up 2 ticks (.06) and 10yr down 1bp at 4.391

12:47 PM 10yr down 1.5bps at 4.386.  MBS up 1 tick (.03).

02:13 PM Sharply weaker after Fed announcement (and dot plot).  MBS down a quarter point and 10yr up 4.7bps at 4.447

02:57 PM More losses during Powell Press Conference.  MBS down almost half a point and 10yr up 8.5bps at 4.486

03:38 PM How low can we go?  MBS down more than 5/8ths.  10yr up 10.3bps at 4.505