MBS RECAP: Strong Start, Weak Finish on Fed Musical Chairs and Month End

Posted To: MBS Commentary

The music is currently playing for the role of Fed Chair next year. When the music stops, Yellen may or may not still have a seat. News came out this morning that Trump was meeting with former Fed governor Kevin Warsh about filling the role. Warsh is also the son-in-law of one of Trump’s long-time friends, and is considered to be a “hawk” on the spectrum of dovish vs hawkish policymakers. Hawks favor higher rates, relative to doves, and less accommodation. As such, rates spiked this morning when the news hit, but never broke above yesterday’s domestic-session highs. Prior to that news, Core year-over-year PCE (one of the Fed’s favorite inflation metrics) fell to 1.3% from 1.4% last month. The Fed would prefer to see this at 2.0%, so the 1.3% result is rate-friendly. Indeed…(read more)

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