June 13, 2018
The economy is strong and the Fed is scaling up its projected rate hikes. The Fed raised its funds rate by 25 basis points and sees not one more, but now two more such hikes by the end of the year. The FOMC is responding to the strength of the jobs market and the risk that inflation, especially wage inflation, will begin to pick up. The day's economic data include a rise in inflation pressures at the producer level including for metals and also for services.
The yield curve continues to flatten as the 2-year rose 4 basis points to 2.57 percent to bring its rise so far this week to 9 basis points. This while the 10-year rose only 1 basis point to 2.97 percent for a weekly gain of 3 basis points. Jerome Powell, in the FOMC press conference, addressed the flattening of the curve attributing the rise in the short end to the Fed's rate hikes and the relatively subdued rise in the long end to demand for safety.
Stocks fell on the hawkish FOMC results with the Dow down 0.5 percent to 25,201. Oil, helped by a large draw in weekly inventories, firmed over $66.50 while gold, at just over $1,300, and the dollar index at 93.60 held steady.