From Maple Capital:
February Commentary
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Bond yields increased markedly in February due in part to the January inflation report which showed a higher increase than expected. The closely-watched core services ex-shelter reading of 0.70% was the highest since September of 2022 and double the December result.
The strength of this report confirms the FOMC statement of January 31 which stated that the Fed does not see cuts until it is more confident that inflation is nearing 2%. This statement was widely interpreted as hawkish and the January inflation report corroborated that interpretation.
The economic strength still evident across many indicators suggests the Fed is correct in pushing off the timing of the first rate cut. The strong January labor report (353K jobs added) was accompanied by healthy revisions to the prior two months. That said, the annual revisions embedded in the January nonfarm payroll report may still be distorted by the pandemic years, so the strength could be overstated.
Read the full commentary.
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