FOMC & QRA: unchanged
Paid subscriber analysis
The first half of this turbo week was a dud. No change in coupon issuance from the Treasury, and no change in interest rates from the Fed.
But we did get one interesting nugget of information, two FOMC members did NOT agree with the rest of the committee (usually the voting is unanimous - at least it has been over the past years):
“Voting against this action were Michelle W. Bowman and Christopher J. Waller, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting.”
It is no surprise that Waller wants to be the next Fed Chair. In his recent speeches he made forceful arguments as to why the Fed should cut rates now rather than later. Bowman on the other hand was usually more hawkish, so seeing her vote against is a bit of a surprise.
This doesn’t affect markets, it’s more internal politics at the Fed and a signaling game of who wants Powell’s job (as they are hoping it’s not an outside hire). The only market impact could be that discontent among the FOMC members makes the September cut more likely. Powell said they haven’t discussed Sep cuts, so let’s see how the market starts to price this in.
As for the Treasury, they left coupon issuance unchanged:
“Treasury believes its current auction sizes leave it well positioned to address potential changes to the fiscal outlook and to the pace and duration of future SOMA redemptions.”
There was no change in guidance, no change in long-term bond issuance, and some increase in buybacks, all within expectations.
As we mentioned on Saturday, this was the most likely scenario - no change from the Fed, and no major move from the Treasury.
This was our anticipation of price action for the week:
If I had to guess, I would say we get a continued sideways-up trading on Mon and Tue (contingent on positive over-the-weekend news and maybe some new Treasury info), a push down following FOMC on Wednesday (as Powell rewards us with more hawkishness and does nothing), a reversal during after-hours on Wed, continued with a gap-up on Thursday, which will extend into Friday following more good earnings and positive tariff news.
Therefore, absent major policy changes, we should see continued strength following earnings.