The Fed’s two-day policy meeting concluded with a bit of a surprise as they signaled their expectations for two rate hikes in 2023, earlier than had previously been communicated. The Fed’s view is the recent inflation reports will be transitory and the market appears inclined to agree with them with shorter-term breakeven inflation rates falling back down to March levels.
Following the Fed’s decision, investors pulled back on their inflation bets with 30-year Treasury yields falling to 2.04% in early trading on Friday, a significant decline (for Treasury markets) from 2.21% on Wednesday and over 2.4% in mid-May.
Bond spreads between corporate bonds and government bonds are falling, signaling increased investor confidence in the economy and reduced risk of companies defaulting on their bonds.
The streak of improvement in initial jobless claims broke last week with claims increasing back above 400K, though the medium-term trend of improvement should continue and claims have nearly halved since January.
