FOMC

Policymakers appear to be concerned about the possibility of cutting interest rates too soon, according to minutes of the Federal Open Market Committee's Jan. 30-31 meeting, released Wednesday.

"With the new economic data signaling a delay of the Fed starting rate cuts to further into the year, we should continue to see yields rise until we get near to the Fed's target of a 2% 'neutral' rate for inflation," said Jason Wong, vice president of municipals at AmeriVet Securities.

The consumer price index number further complicates market expectations of Fed rate cuts and muni investors may want "to keep their powder dry" until they have a better idea of the Fed's timing, said CreditSights' Pat Luby.

The Federal Reserve expects to cut interest rates three times this year, some say as early as March, if data alllow those moves. Following the Jan. 30-31 FOMC meeting, Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions, will provide his take on the meeting and Chair Jerome Powell's press conference.

A majority of those polled at The Bond Buyer's 2024 National Outlook Conference also felt issuance would increase moderately this year, to between $400 billion and $450 billion.

The discussion of rate cuts, both timing and amount, has analysts offering varying estimates.

"I believe policy is set properly," Waller said. "It is restrictive and should continue to put downward pressure on demand to allow us to continue to see moderate inflation readings."

The December consumer price index came in slightly stronger than expected, perhaps eliminating the possibility of a rate cut in March, analysts said.

Musalem, an economist, is a former executive vice president of the Federal Reserve Bank of New York.

This year has favorable potential for 1Q activity, noting an unusually large scheduled reinvestment potential in January and February, including $19 billion of maturities plus calls in January and $24.9 billion in February, noted MMA's Matt Fabian.

"A soft landing is increasingly conceivable but in no way inevitable," Barkin, who will vote on policy decisions this year, said in the text of a speech Wednesday.

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"It's important that we start to move rates down," Harker said Wednesday in a local radio interview. "We don't have to do it too fast, and we're not going to do it right away."

The Federal Open Market Committee meets Dec. 12 and 13 and in addition to their statement, they will issue a Summary of Economic Projections.

Federal Reserve Bank of New York President John Williams said it's too early for officials to begin thinking about cutting rates as soon as March as they consider whether policy is restrictive enough to get inflation back to 2%.

Secondary trading showed clear strength across the yield curve Thursday with bellwether names trading up significantly from recent prints and original pricing levels. New-issues in the primary benefited with issuers repricing to lower yields and tight to triple-A curves.

Muni yields fell up to five basis points and dramatically underperformed USTs, as they are wont to do on FOMC days. Treasury yields fell as much as 29 basis points on the two-year and sent the 10-year down closer to the 4% threshold.

The Federal Open Market Committee's Summary of Economic Projections probably won't offer the 130 basis points of cuts next year that the market expects.

With a high of $450 billion and a low of $330 billion, no firms currently see issuance surpassing the records hit in 2020 and 2021.

All eyes are on the Federal Reserve and monetary policy. Join us as Scott Anderson, chief U.S. economist and managing director at BMO Economics, breaks down the latest FOMC meeting.