MARKET UPDATE

This morning equity markets are steady and Treasury yields edged lower with the 10-year yield trading near 4.65%.  Last week's CPI data came in slightly higher than expectations although it remains substantially lower than the 40-year highs of summer 2022.  Although, inflation has consistently come in above expectations for several months.  Nonetheless, the current level of 3.8% YOY remains stubbornly above 3.0%, well above the Fed's 2% target.  On the other hand, jobs and unemployment data continue to come in better than expectations after modest weakening in fall 2023.  All indications suggest that rates are likely to move lower next, as inflation eases and the labor market begins to slow at a gradual pace.  Since early 2022, the Fed has rapidly tightened monetary policy, with the cumulative amount of hikes at 5.25%.  And today, the FOMC wraps its meeting with expectations for no change in target rate.  The Fed remains committed to bringing inflation down to their 2% target and it may be that rates stay in their current range for longer than the market is expecting.  However, the economic data continues to be encouraging and trend in the right direction.  Concern persists that inflation is sticky, but fears about a near term recession have abated.  It appears that the Fed will achieve a "soft landing", where inflation is tamed without pushing the economy into a recession.

- CMS Staff