Welcome to March where interest rates are as dreary as the weather outside. The catalyst of this increase seems to still be the January jobs report which showed a huge increase in jobs created over what was expected. 517k jobs were created vs the market estimate of 187k. Before that report came out there was an expectation that the Fed was done raising interest rates. Now it’s expected that there will be another interest rate hike in the next Fed meeting at the end of the month it’s just a matter of 25 or 50 point increase. The market runs on narratives and the old narrative of lower inflation and rate hike pauses is being thrown out and the new story is that inflation is here to stay and the Fed really is serious about keeping interest rates high for the foreseeable future.
I know it seems like rates are out of control right now but if there is just a bit of good news is that moves like this are not out of the ordinary. What I mean by that is that markets like to move up and down in certain ranges. These ranges are often determined by the previous highs and lows. For instance, if you would indulge me, the 10 year treasury was around 4.2% back in October. With the moves today we are hovering around the 4% mark. If this ends up being the last move higher for the time being that could be good signal. Meaning that we are seeing lower highs. Now I’m sure the phrase lower highs probably makes as much sense as diet cake or something but the idea is that if we never quite get to the previous highs then the trendline is going down overall. Additionally, markets and algorithms like nice round numbers like 4%. Even though there is nothing inherently special about these numbers but psychologically they very much matter. All that to say is that I think it’s going to be tough for rates to push much higher from here unless we get a big surprise of negative data from the jobs report (3/10) and inflation data (3/14).
Recap:
-Rates continue to increase after Jan jobs report
-Important data for this month
-Jobs report 3/10
-Inflation data 3/14
-Next Fed meeting on March 21-22nd
-Likely see another ¼ to ½% rate hike