As expected, the FOMC left the Fed Funds corridor unchanged on Wednesday. Mildly surprising to us though, their economic forecast continues to indicate that they expect to cut the overnight rate three times this year. As we’ve written on numerous occasions, the job market remains robust, and the consumer price index has stabilized at the mid-3% level, well above the Fed’s stated target. The question being asked, is there an imminent threat to economic growth that the Fed is aware of, but the rest of the investing community is not? Especially since a popular financial conditions indicator, which aggregates broad financial conditions such as interest rates, equity prices, and credit spread is showing that financial conditions have eased since last fall. Why then is the Fed threatening to ease policy?

At first glance the employment report for February was surprisingly strong. The expectation was that the economy would add 200,000 new jobs, up from an expected 188,00 last week. The actual change in payroll was 275,000. The year-over-year change in average hourly earnings was 4.3%, 0.1% lower than it registered last month but still an impressive uptick.

This was a quiet week for the fixed income market, with the entire yield curve closing within a few basis points of last Friday’s close. The only real action came between late Wednesday afternoon into today’s close, as investors digested the minutes of the January FOMC meeting. As expected, the minutes echoed Chairman Powell’s post-meeting press conference comments that communicated that a rate cut was not imminent. That was enough to push the long bond up to 4.48%, the highest yield so far this year. Contributing to the rise was initial claims for unemployment insurance which totaled 201,000 for the week. That was the second lowest tally of 2024 and further evidence that the economy is not poised to enter a recession. But that wasn’t enough to offset dip-buying on Friday. On the week, the 30-year bond closed six basis-points lower, finishing at 4.37%.