Exchange-traded fund inflows have already topped monthly records in 2024, and managers think inflows could see an impact from the money market fund boom before year-end.
“With that $6 trillion plus parked in money market funds, I do think that is really the biggest wild card for the remainder of the year,” Nate Geraci, president of The ETF Store, told CNBC’s “ETF Edge” this week. “Whether it be flows into REIT ETFs or just the broader ETF market, that’s going to be a real potential catalyst here to watch.”
Total assets in money market funds set a new high of $6.24 trillion this past week, according to the Investment Company Institute. Assets have hit peak levels this year as investors wait for a Federal Reserve rate cut.
“If that yield comes down, the return on money market funds should come down as well,” said State Street Global Advisors’ Matt Bartolini in the same interview. “So as rates fall, we should expect to see some of that capital that has been on the sidelines in cash when cash was sort of cool again, start to go back into the marketplace.”
Bartolini, the firm’s head of SPDR Americas Research, sees that money moving into stocks, other higher-yielding areas of the fixed income marketplace and parts of the ETF market.
“I think one of the areas that I think is probably going to pick up a little bit more is around gold ETFs,” Bartolini added. “They’ve had about 2.2 billion of inflows the last three months, really strong close last year. So I think the future is still bright for the overall industry.”
Meanwhile, Geraci expects large, megacap ETFs to benefit. He also thinks the transition could be promising for ETF inflow levels as they approach 2021 records of $909 billion.
“Assuming stocks don’t experience a massive pullback, I think investors will continue to allocate here, and ETF inflows can break that record,” he said.
U.S. Treasury yields fell Wednesday, as investors considered the outlook for monetary policy and financial markets for the coming year.
The yield on the 10-year Treasury dropped nearly 10 basis points to 3.789%. The 2-year Treasury yield edged down 4 basis points to 4.246%.
Yields and prices move in opposite directions. One basis point equals 0.01%.
In the last week of trading for 2023, investors considered the path ahead for interest rates and how this could impact the U.S. economy and financial markets.
Earlier this month, the Federal Reserve indicated that interest rates will be cut three times next year, with further reductions expected in 2025 and 2026, as inflation has “eased over the past year.”
Many investors have interpreted recent economic data, including the November U.S. personal consumption expenditure price index, as a sign that the Fed would be able to stick to its monetary policy expectations for next year.
Uncertainty remains about when the central bank will start cutting rates, although traders are pricing in an over 70% chance of rate cuts at its March meeting, according to CME Group’s FedWatch tool.
Market optimism over the potential for interest rate cuts next year is dangerously overdone, according to former FDIC Chair Sheila Bair.
Bair, who ran the FDIC during the 2008 financial crisis, suggests Federal Reserve Chair Jerome Powell was irresponsibly dovish at last week’s policy meeting by creating “irrational exuberance” among investors.
“The focus still needs to be on inflation,” Bair told CNBC’s “Fast Money” on Thursday. “There’s a long way to go on this fight. I do worry they’re [the Fed] blinking a bit and now trying to pivot and worry about recession, when I don’t see any of that risk in the data so far.”
The Dow hit all-time highs in the final three days of last week. The blue-chip index is on its longest weekly win streak since 2019 while the S&P 500 is on its longest weekly win streak since 2017. It’s now 115% above its Covid-19 pandemic low.
Bair believes the market’s bullish reaction to the Fed is on borrowed time.
“This is a mistake. I think they need to keep their eye on the inflation ball and tame the market, not reinforce it with this … dovish dot plot,” Bair said. “My concern is the prospect of the significant lowering of rates in 2024.”
Bair still sees prices for services and rental housing as serious sticky spots. Plus, she worries that deficit spending, trade restrictions and an aging population will also create meaningful inflation pressures.
“[Rates] should stay put. We’ve got good trend lines. We need to be patient and watch and see how this plays out,” Bair said.
Wells Fargo Securities is officially out with its 2024 stock market forecast.
Chris Harvey, the firm’s head of equity strategy, sees a volatile path to his S&P 500 to 4,625 year-end target.
“It’s really hard to get excited. If we have better [economic] growth, then the Fed doesn’t do anything,” he told CNBC’s “Fast Money” on Monday. “If we have worse growth, then numbers are going to come down and then the Fed will eventually cut. The second half will be better, but the first half is going to be really, really sloppy.”
Harvey’s target is just 75 points above Monday’s S&P 500’s close.
“Can we go higher from here? Sure, we can go a little bit higher. But I just don’t think you can go a ton higher,” he said. “People have talked about 5,000. I don’t see how you get to that level.”
In his official 2024 outlook note, Harvey told clients to brace for a “trader’s market” instead of a “buy-and-hold situation.” His early year strategy: Start with a risk-averse stance.
“The VIX [CBOE Volatility Index] is up 13. Every time we’ve gone into a new year with the VIX at 13, we’ve seen spikes. We’ve seen the equity market pull back, and it’s just not a great setup into 2024,” Harvey added.
He warns the higher cost of capital is an additional market problem because it prevents multiples from going higher.
“As long as the cost of capital stays higher, it’s really hard for me to get to a much higher price target,” Harvey said.
Yet, he still sees opportunities for investors.
“What we want to do is we want to go to the places that are oversold. We just upgraded utilities today. We upgraded health care,” Harvey noted. “Those are areas that have good valuations, decent fundamentals and most people really aren’t there at this point.”
“If you look at the alternatives, there are things that are pretty attractive. And, I hate to say that as being head of equity strategy, but you can park money at the front of the curve and make a pretty good rate of return and not put on a whole lot of risk,” said Harvey.
His 2023 S&P target is 4,420 — which implies a three percent drop from Monday’s close.
Suze Orman has a warning for investors relying too heavily on bonds.
The personal finance expert believes the draw of high interest rates and an aversion to risk taking are preventing too many people from taking a “lifetime opportunity” in the stock market.
“Some of these stocks — how do you pass them up? I mean, you have to go into them. Now, do you go into them with everything that you have? No. Do you dollar-cost average into them, and take advantage of [down] days? … Yes,” the “Women & Money” podcast host told CNBC’s “Fast Money” this week. “You’ll be making a big mistake if you park your money forever in bonds.”
“I have some serious losers at this point. However, I don’t care,” said Orman. “I want to buy a stock, and I hope it goes down. And I hope it goes further down and down so I can accumulate more.”
She does recommend keeping some money in fixed income to mitigate risks in a volatile environment.
At the same time, she still sees a role for bonds in portfolios. She likes the three– and six-month Treasurys and is ready to start looking longer term.
“The play may start to be in long-term Treasurys. So, I’ve started to dip my toe in. Every time the 30-year [yield] crosses five percent, I buy,” said Orman.
The 30-year Treasury yield is still near 2007 highs. It traded above 5% as of Friday’s close.
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Microsoft profit pops Microsoft issued quarterly revenue guidance above Wall Street estimates. The company also reported a surge in profit thanks to a slower pace of operating expense growth. Net income, at $22.29 billion, increased 27% from $17.56 billion, or $2.35 per share in the same quarter a year ago. The software maker’sshares jumped as much as 6% in extended trading on Tuesday.
Alphabet cloud business in spotlight Alphabet reported 11% revenue growth in the third quarter, as a rebound in advertising pushed expansion into double digits for the first time in over a year. Its shares dropped almost 7% in extended trading as the cloud business missed analysts’ estimates. For the quarter, it reported earnings per share of $1.55 vs. $1.45 expected by LSEG, formerly known as Refinitiv. Google Cloud revenue was $8.41 billion vs. $8.64 billion, according to StreetAccount.
Snap shares seesaw Snap shares initially soared as much as 20% in after-hours trading as the company beat on the top and bottom lines. It later settled to gain a little over 1% as investors digested news that some advertisers had paused spending following the onset of the war in the Middle East.
[PRO] Rising yields and war Yields are still rising, a war is raging, and it’s uncertain whether interest rates will stay higher for longer. Last week, the yield on the 10-year U.S. Treasury notewas above 4.9% for the first time since 2007. Investors continued to consider geopolitical risks from the Israel-Hamas war and the United States’ restrictions on artificial intelligence chip exports to China. Here’s how to trade the volatility, according to fund managers.
Markets are now slowly starting to come away from the tumultuous swings of last week when Treasury yields were high, and catalysts were few. That no longer seems an issue as investors can now look to a heavy flow of earnings to make their next call.
The Dow snapped four straight sessions of losses to end higher on Tuesday. U.S. Treasury yields were steady after slipping back below 5%, though they remained near 16-year highs.
Investors also had a spate of quarterly reports to parse. Coca-Cola posted earnings and revenue above estimates. Verizon recorded its best daily performance in almost 15 years after beating analysts’ expectations for both earnings and revenue. Audio streaming giant Spotify posted third-quarter results that topped expectations.
But the elephant in the room was Big Tech earnings.
Cloud revenue was key for both Microsoft and Alphabet. It’s a business that’s becoming even more significant with the emergence of generative artificial intelligence, which runs hefty workloads in the cloud.
The clear winner of this quarter’s cloud battle was Microsoft, powered by Azure as clients flocked to new generative AI tools in the cloud that have been enhanced with software from Microsoft-backed startup OpenAI.
Alphabet’s cloud unit tried to catch up with Azure and Amazon Web Services. But Google’s core advertising also weakened due to economic softening last year and increased competition from TikTok.
“If you want this stock to keep going higher, you’ve got to have cloud become more profitable,” said Lee Munson, chief investment officer of Portfolio Wealth Advisors. “It’s a third-rate cloud platform. We need to see it make money.”
Keeping to the AI theme, Qualcomm announced two new chips on Tuesday designed to run AI software — including the large language models, or LLMs, that have captivated the technology industry — without having to connect to the internet.
This could potentially boost the speed with which a high-end smartphone chip processes AI models.
People walk by the Fearless Girl bronze sculpture outside the New York Stock Exchange on April 21, 2023.
Spencer Platt | Getty Images News | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Microsoft profit pops Microsoft issued quarterly revenue guidance above Wall Street estimates. The company also reported a surge in profit thanks to a slower pace of operating expense growth. Net income, at $22.29 billion, increased 27% from $17.56 billion, or $2.35 per share in the same quarter a year ago. The software maker’sshares jumped as much as 6% in extended trading on Tuesday.
Alphabet cloud business in spotlight Alphabet reported 11% revenue growth in the third quarter, as a rebound in advertising pushed expansion into double digits for the first time in over a year. Its shares dropped almost 7% in extended trading as the cloud business missed analysts’ estimates. For the quarter, it reported earnings per share of $1.55 vs. $1.45 expected by LSEG, formerly known as Refinitiv. Google Cloud revenue was $8.41 billion vs. $8.64 billion, according to StreetAccount.
Snap shares seesaw Snap shares initially soared as much as 20% in after-hours trading as the company beat on the top and bottom lines. It later settled to gain a little over 1% as investors digested news that some advertisers had paused spending following the onset of the war in the Middle East.
[PRO] Bitcoin just broke above a key level At last, bitcoin has broken out of a tight trading range, potentially heralding greater highs from here. After oscillating between $25,000 and $30,000 for most of the year, touching the top end several times and stepping out of it briefly at one point in July, the flagship cryptocurrency shot up to $35,000 late Monday. Here’s what investors should expect.
Markets are now slowly starting to come away from the tumultuous swings of last week when Treasury yields were high, and catalysts were few. That no longer seems an issue as investors can now look to a heavy flow of earnings to make their next call.
The Dow snapped four straight sessions of losses to end higher on Tuesday. U.S. Treasury yields were steady after slipping back below 5%, though they remained near 16-year highs.
Investors also had a spate of quarterly reports to parse. Coca-Cola posted earnings and revenue above estimates. Verizon recorded its best daily performance in almost 15 years after beating analysts’ expectations for both earnings and revenue. Audio streaming giant Spotify posted third-quarter results that topped expectations.
But the elephant in the room was Big Tech earnings.
Cloud revenue was key for both Microsoft and Alphabet. It’s a business that’s becoming even more significant with the emergence of generative artificial intelligence, which runs hefty workloads in the cloud.
The clear winner of this quarter’s cloud battle was Microsoft, powered by Azure as clients flocked to new generative AI tools in the cloud that have been enhanced with software from Microsoft-backed startup OpenAI.
Alphabet’s cloud unit tried to catch up with Azure and Amazon Web Services. But Google’s core advertising also weakened due to economic softening last year and increased competition from TikTok.
“If you want this stock to keep going higher, you’ve got to have cloud become more profitable,” said Lee Munson, chief investment officer of Portfolio Wealth Advisors. “It’s a third-rate cloud platform. We need to see it make money.”
Keeping to the AI theme, Qualcomm announced two new chips on Tuesday designed to run AI software — including the large language models, or LLMs, that have captivated the technology industry — without having to connect to the internet.
This could potentially boost the speed with which high-end smartphone chip processes AI models.
U.S. Treasury yields rose on Wednesday with the 10-year hitting a fresh multiyear high as investors digested the latest economic data and considered the outlook for Federal Reserve interest rates.
The 10-year Treasury yield gained nearly 7 basis points to 4.911%, putting it above 4.9% for the first time since 2007. Meanwhile, the 2-year Treasury yield was trading almost 2 basis points up at 5.231%, around levels last seen in 2006.
Also notably, the 5-year Treasury moved as high as 4.937%, its top level since 2007.
Yields and prices move in opposite directions and one basis point equals 0.01%.
Investors considered fresh economic data as uncertainty about the path ahead for Fed monetary policy grew in recent weeks.
Housing starts accelerated in September, but rose as a slower-than-expected rate, according to data released Wednesday. Building permits fell in the month, but lost less than economists anticipated.
Retail sales figures for September, which were published Tuesday, increased by 0.7% for the month. That’s far higher than the 0.3% anticipated by economists surveyed by Dow Jones, and indicates resilience from consumers in light of higher interest rates and other economic pressures.
The data brought up renewed concerns over the outlook for interest rates, with some investors viewing it as an indication that rates may be hiked further or at least kept elevated for longer.
Markets are still pricing in a 90% chance that rates will remain unchanged when the Fed announces its next monetary decision on Nov. 1, but the probability of a December rate increase rose after Tuesday’s data, according to the CME Group’s FedWatch tool.
In recent days and weeks, various Fed officials have indicated that the central bank may be done hiking, especially as higher Treasury yields are contributing to tighter economic conditions. Further comments from policymakers are expected this week, including by Fed Chairman Jerome Powell, and investors are looking to their comments for hints about their policy expectations.
Upcoming economic data may also influence opinion among both investors and Fed officials.
Investor and personal finance author Ric Edelman believes it’s a practical strategy to take chips off the table right now.
“It comes down to behavioral finance. It comes down to human emotion,” the Edelman Financial Engines founder told CNBC’s “ETF Edge” this week. “Do you have the stomach? Does your spouse have the stomach to hang in there if things get ugly like they did in ’01, ’08, 2020? Can you hang in there?”
Edelman added there’s a “laundry list of reasons” to be cynical right now. He includes struggles in the real estate market, high interest rates, government shutdown risks and the Israel-Hamas war.
“It’s easy to be negative and that can cause you to say, ‘Why do I want to put myself in a position of maybe losing another 20% or 30% of my money when I’ve already amassed an awful lot of money and I am already in my ’60s or ’70s and I need the safety and protection and by the way get five percent in my bonds or U.S. Treasury or my bank CD? Why don’t I just park it? Earn 5%. Call it a day,’ he said.
Edelman acknowledges the strategy could be less profitable, but he suggests it’s important to sleep better at night.
“I’m not sure everybody in the investment world is acting logically as opposed to emotionally. You’ve got to know yourself,” said Edelman.
The Capital Group’s Holly Framsted is also seeing investors de-risk, and her firm is trying to cater to them by offering a new batch of exchange-traded funds focused on fixed income.
“We’re seeing increased interest in short-duration fixed income,” said the firm’s head of global product strategy and development.
Framsted speculates the investors are making the move to short-duration funds in response to the volatility of today’s market.
“[The Capital Group Core Bond ETF] was among the original six funds that we launched,” Framsted said. “We’re seeing interest among our client base who tend to be longer-term oriented in nature across the full spectrum. But certainly, a lot of conversations in the short-duration space given the environment that we’re in.”
The firm’s bond ETF is virtually flat since its Sept. 28 launch. The Capital Group managed more than $2.3 trillion as of June 30, according to the firm’s website.
A major financial services CEO warns the economy hasn’t fully absorbed higher interest rates yet.
Thomas Michaud, who runs Stifel company KBW, notes there’s a delayed reaction in the marketplace from the last hike — calling a 25 basis point move at 5% a very different situation than off a half percent.
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“This is getting to be the real deal at the moment because of the level of rates,” he told CNBC’s “Fast Money” on Wednesday. “The bite of these higher rates is gaining traction almost every day.”
Michaud delivered the call hours after the Federal Reserve decided to leave interest rates unchanged. It comes after ten rate hikes in a row.
The Fed signaled on Wednesday two more hikes are ahead this year. Michaud expects one to happen in July. However, he questions whether policymakers will raise rates a second time.
“Trying to deliver a new message with these dots is not what I’m willing to hang my hat on from what I see happening in the economy,” he said. “The economy is slowing. So, I think we’re near the end of this rate increase cycle.”
He lists interest rate sensitive areas of the economy already in a recession: Office space in urban areas, residential mortgage originations and investment banking revenues. He sees the problems contributing to more pain in regional banks.
“Banks were already tightening in the fourth quarter of last year. It didn’t just start in March. Loan growth had been slowing,” added Michaud. “There are elements of like the global financial crisis that are in bank stocks right now.”
According to Michaud, the regional bank rally is a short-term bounce. The SPDR S&P Regional Banking ETF is up almost 18% over the past month.
“The overall industry rally for all participants probably doesn’t happen until we get some more stability in what we think the earnings are going to be,” said Michaud. “Earnings estimates haven’t settled. They haven’t stopped going down.”
He sees a shift from adjusting to the new interest rate environment to credit quality in the second half of this year.
“Before the first quarter we cut bank estimates by 11%. After the quarter, we cut them by 4%.” Michaud said. “My instincts are we are going to cut them again.”
The artificial intelligence trade may be leaving investors vulnerable to significant losses.
Evercore ISI’s Julian Emanuel warns Big Tech concentration in the S&P 500 is at extreme levels.
“The AI revolution is likely quite real, quite significant. But… these things unfold in waves. And, you get a little too much enthusiasm and the stocks sell off,” the firm’s senior managing director told CNBC’s “Fast Money” on Monday.
In a research note out this week, Emanuel listed Microsoft, Apple, Amazon, Nvidia and Alphabet as concerns due to clustering in the names.
“Two-thirds [of the S&P 500 are] driven by those top five names,” he told host Melissa Lee. “The public continues to be disproportionately exposed.”
Emanuel reflected on “odd conversations” he had over the past several days with people viewing Big Tech stocks as hiding places.
“[They] actually look at T-bills and wonder whether they’re safe. [They] look at bank deposits over $250,000 and wonder whether they’re safe and are putting money into the top five large-cap tech names,” said Emanuel. “It’s extraordinary.”
It’s particularly concerning because the bullish activity comes as small caps are getting slammed, according to Emanuel. The Russell 2000, which has exposure to regional bank pressures, is trading closer to the October low.
“You want to stay in the more defensive sectors. Interestingly enough with all of this AI talk, health care and consumer staples have outperformed since April 1,” Emanuel said. “They’re going to continue outperforming.”
Investors may have a new way to generate income during economic declines.
Innovator launched a one-of-a-kind suite of barrier ETFs this month that provides protection by purchasing U.S. Treasurys and selling equity options.
“Advisors are realizing that bonds aren’t the safe haven that many thought they would be,” the firm’s CIO, Graham Day, told CNBC’s “ETF Edge” this week. “If you can pair [a barrier ETF] with the fixed income, it offers a tremendous amount of diversification benefits.”
Day said these ETFs remove credit risk while providing daily liquidity.
Protecting against losses up to 10%, 20%, 30% and 40%, the funds provide income distribution rates at around 9%, 8%, 6% and 5%, respectively, according to the company’s website.
This means they’ll produce less income with the more protection they provide. If the fund’s underlying asset experiences losses beyond its set performance level, Day contends investors will still receive quarterly distribution payments — which are based on the premiums of the sold options.
Per Innovator data on defined outcome ETF industry growth, barrier and buffer ETFs have increased from three in August 2018 to 158 in March 2023, with assets under management rising from $100,000 to about $21 billion.
Newcomers in the defined outcome ETF space should not be deterred by the detailed protection the funds offer, said Todd Sohn of Strategas Securities.
“Don’t get too scared of the word ‘option,'” the firm’s managing director said. “If you’re a novice investor, understand that they’re not doing anything too crazy, right? If that was the case, I don’t think the products would be gathering assets too much.”
He finds Innovator’s website does a “great job” of breaking everything down.
“I’d be curious as ETFs continue to grow and the options markets on other funds deepens if they’ll add more suites out there,” Sohn added.
In a statement to CNBC, Sohn wrote he’s not a client of Innovator and doesn’t use these ETFs right now. But he indicates he could see using them in the future.
According to MarketAxess CEO Chris Concannon, there are signs Treasury ETFs are on the cusp of substantial inflows.
“We’re about to see what I’d call [a] bond renaissance,” the electronic-trading platform CEO told CNBC’s “ETF Edge” this week. “The Fed is still taking action, so I would expect bond yields overall to remain relatively high and attractive.”
In late March, the Federal Reserve raised rates by a quarter point — its ninth hike since March 2022. Next Wednesday, Wall Street will get the Fed minutes from the last policy meeting and more clarity on what may come next.
VettaFi vice chairman Tom Lydon sees a similar pattern.
“They’re starting to move back not just into Treasurys, but into corporates and high yields with the idea that we may be able to lock in longer duration and longer payment for those higher rates, [and] with the idea that we’re not going to see higher rates a year from now,” he said.
VettaFi’s latest data finds international and U.S. fixed income exchange-traded funds saw about $45 billion in inflows since the beginning of the year. Meanwhile, it found corporate bond ETFs saw $6 billion in outflows in the first quarter
Lydon speculates the renewed interest is caused by investors losing faith in traditional 60/40 investment portfolios.
“We’ve seen a lot of advisors take a little bit off the table, both in the equity side and the fixed income side,” he said. “So, safety is key until we start to see confidence that the Fed really has some handle on inflation and [there’s] stability in the marketplace.”
Investors swarmed into U.S government bonds Monday after the collapse of Silicon Valley Bank and subsequent government backstop of the banking system. The rush sent Treasury yields tumbling.
The yield on the 2-year Treasury was last trading at 4.005%, down nearly 59 basis points. (1 basis point equals 0.01%. Prices move inversely to yields.)
The yield has fallen around 100 basis points, or a full percentage point, since Wednesday, marking the largest three-day decline since Oct. 22, 1987, when the yield fell 117 basis points. That move followed the Oct. 19, 1987 stock market crash — known as “Black Monday” in which the S&P 500 plunged 20% for its worst one-day drop. The move was bigger than the 2-year yield slide of 63 basis points that took place in three days following the 9/11 attacks.
The yield on the 10-year Treasury was down by more than 15 basis points at 3.543%.
The financial shock also caused investors to rethink how aggressive the Federal Reserve will continue to be with rate hikes, helping to send short-term yields lower. The central bank is meeting next week and was largely expected to raise rates for a ninth time since March of last year — but that was before Silicon Valley Bank’s collapse happened last week.
Goldman Sachs no longer thinks the Fed will hike rates, citing “recent stress” in the financial sector. However, traders are pricing in about 2-to-1 odds that the Fed raises its benchmark borrowing rate by 0.25 percentage point at the March 21-22 meeting.
And the market is also anticipating that by the end of the year, the central bank will lop off 0.75 percentage point in cuts, taking the rate down to a target range of 4%-4.25%. Current pricing indicates a terminal rate of 4.75% by May.
“In the wake of SVB, interest rate yields have gone lower and will most likely continue to go lower as the Fed’s hand is being forced to be less hawkish in the coming months while the banking sector uncertainty plays out,” said Jeff Kilburg, founder & CEO of KKM Financial.
The 2-year Treasury yield rose to 5.085% last week, its highest since June 2007 before the sudden decline.
U.S. 2-year Treasury yield
Investors also braced themselves for a series of key inflation data due this week. February’s consumer price inflation report, including the latest reading of the core inflation rate, is expected Tuesday, followed by wholesale inflation data on Wednesday.
That comes after Federal Reserve Chairman Jerome Powell indicated last week that the central bank’s upcoming interest rate decision would be “data-dependent.” Powell also suggested that interest rates would likely go higher than expected as the Fed’s battle with inflation continues.
Citigroup economists think the Fed will follow through with a 25 basis-point increase next week rather than hold off in response to the banking tumult.
“Doing so would invite markets and the public to assume that the Fed’s inflation fighting resolve is only in place up to the point when there is any bumpiness in financial markets or the real economy,” Citi economist Andrew Hollenhorst said in a client note.
U.S. Treasury yields rose Friday after jobs data came in much better than expected.
The 10-year Treasury yield was up more than 12 basis points at 3.526%. The 2-year Treasury was up roughly 20 basis points to 4.299%.
Yields and prices move in opposite directions and one basis point equals 0.01%.
Nonfarm payrolls increased by 517,000 for January, notably above the 187,000 additions estimated by Dow Jones. The unemployment rate fell to 3.4%, lower than the 3.6% expected by Dow Jones.
The data underscored the stickiness of the labor market. The Fed has been trying to cool the economy through monetary policy measures, including interest rate hikes. At the conclusion of its latest meeting on Wednesday, the central bank increased rates by 25 basis points, but also said it was starting to see a slight slowdown of inflation.
