Macro Musings - A Week Of Two Halves
The World Did / Not End This Weekend (Delete As Appropriate)
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Powell puts 50bp back on the Table
In his testimony to Congress earlier in the week, Powell opened the possibility of a 50bp hike for the March FOMC, a significant U-turn after spending two months emphasizing smaller 25 bp steps to provide more time to assess the full impact of past rate hikes.
This U-turn in the Fed’s stance on the hiking pace sent the 2-year Treasuries above 5% and the 2-year versus 10-year yield spread (“2y10y”) to -108bp. In the past 3 decades, the 2y10y yield curve inversion always preceded a recession, although the degree of inversion itself may not necessarily signal the depth of the recession.
Nonetheless, Powell insisted that the decision for March has not yet been made until the FOMC has observed all of the incoming data.
For our paying members only, allow us to walk through the remainder of our take on the current situation.