Wednesday, November 9, 2022 |
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MANAGING DIRECTOR: |
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US Treasury Market |
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| Date | 1 mo | 3 mo | 6 mo | 1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
| 11/02/22 | 3.70 | 4.22 | 4.57 | 4.76 | 4.61 | 4.54 | 4.30 | 4.20 | 4.10 | 4.41 | 4.15 |
| 11/03/22 | 3.75 | 4.25 | 4.57 | 4.78 | 4.71 | 4.63 | 4.36 | 4.26 | 4.14 | 4.42 | 4.18 |
| 11/04/22 | 3.73 | 4.21 | 4.55 | 4.76 | 4.66 | 4.58 | 4.33 | 4.26 | 4.17 | 4.49 | 4.27 |
| 11/07/22 | 3.78 | 4.29 | 4.62 | 4.80 | 4.72 | 4.63 | 4.39 | 4.31 | 4.22 | 4.55 | 4.34 |
| 11/08/22 | 3.66 | 4.28 | 4.60 | 4.77 | 4.67 | 4.55 | 4.31 | 4.22 | 4.14 | 4.47 | 4.28 |
Source: U.S. Department of the Treasury, as of 11/08/2022
Hawkish to More Hawkish
Last week the Federal Reserve raised the Fed Funds rate another 75 basis points to a range of 3.75% to 4%. This increase was expected by the markets. However, during the press conference that followed the annoucement, Fed Chair Jerome Powell made several very hawkish comments catching markets and economists off guard. Many were expecting and looking forward to hints towards a “pivot” in which the Fed will begin smaller rates of increase and ultimately ending this tightening cycle. Conversely, the only pivot that actually happened was from a hawkish Fed to a more hawkish Fed.
Powell made the following comments:
“It is very premature to think about pausing [interest rates]”
“The labor market remains extremely tight”
“We continue to anticipate that ongoing increases [to fed funds rate] will be appropriate”
“We still have some ways to go”
“Level of interest rates will be higher than previously expected”
An additional key takeaway from the press conference was Powell’s stance towards the idea of “over-tightening”. He stated that the committee does not believe they have over-tightened, but that if they “were to over-tighten”, they have the appropriate “tools to strongly support the economy”. This is a very interesting, because he is almost indicating that a “hard landing” of an over-tightened economy (think hard recession) would be more easily dealt with than if they fail to rein in current levels of inflation. Consider a comment made last week by Christine Lagarde, President of the European Central Bank (ECB), who said that a “mild recession” by itself would not “be sufficient to tame inflation”. Now I understand she is referring to the European economy, which is also dealing with very high levels of inflation, but all eyes remain on the central banks of the world right now as they attempt to deal with very serious economic challenges.
What does all this mean to us? There is undoubtedly a lot of uncertainty ahead concerning economic strength and interest rates. Community banks should continue to keep very close watch on the quality of their loan portfolio and investments. We believe there are “cracks” in the economy that have been there for some time, but the Fed appears to be clearly on a mission to resolve the current inflation crisis and willing to tolerate a hard economic reality ahead if that’s what it takes.
Please reach out to your Country Club Bank representative with any questions or to further discuss today’s topic!
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