Fed meeting on Tuesday and Wednesday will hold the focus early in the week. My expectations are for a 25 bps cut followed by text that states that they are going to take a pause and see how their actions over the past qtr transpire. There will likely be a split vote as some voters will cite the inflation issue. If the Fed does not cut, it will signal they are really worried about inflation. Economic data suggests the US economy is still slowing down, but interest rate cuts take 6-9 mths to show an effect. US stimulus checks are in the mail-let's see how many get used to buy TVs and how much pays down their debt.
Plenty of talk in the press regarding the bulging MMKTs accounts. That is dead money. Buyers of fixed income are not adding to their positions as the FED rate cutting program gets cut short. Few are talking of rate cuts to the 1% level now, but 3 weeks ago, the mkt was convinced deeper rate cuts are on the way. 2 yr UST are at 2.20% from 1.80% 2 weeks ago. Japan showed its fastest inflation rate in 10 yrs and the bond mkt sold off vilolently. Interest rates remain negative and investment pros are starting to shift out of FI and into equities. Risk is being forced back intothe portfolios just like 2002 and 2003.
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