With the 10-year plummeting below 2% again and the 3-month yield spiking up by over 7 basis points (bps), which is its biggest one day gain since December 2017, the yield curve is cratering today. Today’s 11 bps move further into inverted territory is the biggest one-day move since January 2nd (see second chart). While not back at new lows, today marks the 29th day that the curve has now been inverted. In Fedspeak news, Cleveland Fed President Loretta Mester (who leans hawkish but isn’t a voter) just noted in a speech that she’s in no hurry to cut. She argues that “Cutting rates at this juncture could reinforce negative sentiment about a deterioration in the outlook even if this is not the baseline view, and could encourage financial imbalances given the current level of interest rates, which would be counterproductive.”
What would cause her to change her stance? “If I see a few weak job reports, further declines in manufacturing activity, indicators pointing to weaker business investment and consumption, and declines in readings of longer-term inflation expectations, I would view this as evidence that the base case is shifting to the weak-growth scenario.” A few weak job reports? In other words, she is in no hurry to take any action. Keep in mind, though, that as recently as late February, Mester was still of the view that the FOMC would need to be raising rates later on this year. Start a two-week free trial to Bespoke Institutional for full access to all of our research and interactive tools.