Cunningham on Powell
Federated Investors' latest "Month in Cash," entitled, "Don't confuse Powell's optimism with hawkishness," tells us, "The Jerome Powell era at the Federal Reserve essentially began this week with the new chairman's high-profile testimony before Congress. You could, for the sake of brevity, summarize the entire event with that sentence. He didn't offer any opinion or statement that was unexpected or materially different than the Fed's outlook under Janet Yellen. But the risk markets had a sour reaction to his enthusiasm about the improvement of the U.S. economy since December, which caused a stir. We think it was an overreaction. Powell's optimism might have been slightly ... somewhat ... a tad ... a touch too strongly articulated, but Yellen probably wouldn't had gotten any such response if she had said the same.... It is no surprise, however, that his optimism nudged the fed funds futures market to expect four 25 basis-point moves this year instead of three." Money market CIO Deborah Cunningham writes, "In the end, what matters the most from a cash manager perspective is always the next opportunity for a rate increase, and it is a virtual lock now that policymakers will raise the range from 1.25-1.50% to 1.50-1.75% at the Federal Open Market Committee meeting at the end of this month. Short rates are higher but the glut of government issuance this month also is playing a role, as the Treasury scrambles to fund the additions to the national debt that tax cuts and budget proposals likely will create. The London interbank offered rate (Libor), which Powell took the time to admonish everyone to abandon asap, has priced in most of the March move, with 1-month rising from 1.57% to 1.65%, 3-month from 1.77% to 1.99% and 6-month from 1.97% to 2.20%. Therefore, nothing has altered our preference for shorter-dated paper and variable-rate instruments as rates rise."
