March 5 2023
The ASA Staffing Index is showing some early weakness this year compared to last year. Staffing jobs were down 4.5% year-over-year in February. We will be monitoring this leading labor market indicator to determine if this is a temporary blip or if this is an early indication that the hot jobs market is finally cooling off.
There will be a lot of labor market data published this week with a JOLTS report on Wednesday and a nonfarm payrolls/unemployment report on Friday. The Fed will be watching these reports closely.
The U.S. Treasury Yield Curve inversion shows treasury yields peaking at 5.18% for six-month T-bills and falling to 3.90% for 30-year bonds. We view maturities in the three-month through the two-year range as attractive for purchase. We also think TIPS with real yields of 1.45% to 1.55% (plus headline CPI) are attractive for purchase.
30-year minus 3-month is -101 basis points.
10-year minus 2-year is -89 basis points.
10-year minus 3-month is -94 basis points.
Month-over-month and year-over-year changes per UST maturity:
The U.S. Treasury Auction Schedule includes a 3-year note, a 10-year note reopening, and a 30-year bond reopening this week:
You can purchase treasuries directly at TreasuryDirect.gov or via your brokerage.
The next Federal Open Market Committee (FOMC) meeting is scheduled for March 21st and 22nd. We expect a 25 basis point rate hike at the March meeting, though a 50 basis point rate hike cannot be ruled out. The meeting will include an updated Summary of Economic Projections (SEP) from FOMC members. Below is the central tendency from the most recent (December) SEP. The central tendency removes the three highest and three lowest projections.
Below is the most recent FOMC fed funds rate forecast (aka The DotPlot). Each blue dot represents each FOMC member’s fed funds rate forecast for year-end 2023, 2024, and 2025. In the December 2022 SEP all but two FOMC members forecast a fed funds rate above 5% in December 2023 and a fed funds rate below 5% in December 2024. We expect the year-end 2023 and 2024 dots to move higher in the upcoming March SEP.
Below are the latest CME FedWatch probabilities for the March FOMC meeting and beyond. It shows a 72% chance of a quarter-point rate hike and a 28% chance of a half-point rate hike in March. Either way, there is a 100% chance of a rate hike. You can see that most investors expect the fed funds rate to finish the year in the 5.0% to 5.75% target range.
On Tuesday and Wednesday this week Fed Chair Jay Powell will deliver the semiannual Monetary Policy Report to Congress. We expect Chair Powell to talk about how far the FOMC has already tightened policy and emphasize that additional work remains to be done in the coming months. The Fed will keep at it!
Upcoming economic reports:
Monday Mar 6:
Tuesday Mar 7:
Fed Chair Powell - Semiannual Monetary Policy Report
Wednesday Mar 8:
JOLTS Job Openings/Quits
Fed Beige Book
Thursday Mar 9:
Friday Mar 10:
Nonfarm Payrolls & Unemployment