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Prices rose on Wednesday, boosted by an apparent
downgrade in the Fed’s assessment of the economy, as reported
in the Fed’s Beige Book. The report, prepared for the upcoming
March 21 FOMC meeting, indicated that while the economy continued
growing modestly in most of the country, there were exceptions
as “several Districts noted some slowing.” Most reported growth
in retail sales and “Almost all Districts reported that housing
markets remained weak, but signs of stabilization were noted
in several Districts.” While not putting the Fed on a timeline
toward easing, the Beige Book clearly followed a path which
could lead to an ease. There has been a subtle trend since
mid-fall toward weaker data and an easier Fed. Fed Funds futures
contracts closed yesterday about where they ended last week,
pricing in a 70% chance of an ease in June and a total of
50bp in easing this year. This morning, bond prices are a
touch weaker, having shown no response to the morning’s weekly
jobless claims report.
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