Markets climb cautiously after warnings by Fed officials

Dow went up 48, advancers over decliners 4-3 & NAZ gained 37.  The MLP index stayed in the 258s & the REIT index was up 3+ to the 377s.  Junk bond funds drifted a little lower & Treasuries were sold, driving yields higher.  Oil jumped 2+ to the 76s & gold slid 4 to 2047 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Richmond Fed Pres Tom Barkin said it would be smart for the central bank to "take our time" on rate cuts despite "remarkable" data showing that inflation is dropping.  Barkin made these comments, arguing that while it's possible for the US to return to a pre-pandemic economy "seamlessly," it’s also possible that the landing could be "bumpier."  "That’s why I think it is smart for us to take our time," he said.  "No one wants inflation to reemerge. And given robust demand and a historically strong labor market, we have time to build that confidence before we begin the process of toggling rates down."  Barkin is the latest policymaker to pump the brakes on expectations for an aggressive pace of cuts in 2024.  Boston Fed Pres Susan Collins & Cleveland Fed Pres Loretta Mester both said this week they need to see more to feel confident inflation is heading back to the central bank’s 2% target, predicting that would likely happen "later this year."   "I will need to see more evidence before considering adjusting the policy stance," Collins said yesterday.  "That said, as we gain more confidence in the economy achieving the committee’s goals ... I believe it will likely become appropriate to begin easing policy restraint later this year."  Mester used similar language Tues, saying the central bank could lower interest rates "later this year" while warning it would be a "mistake" to cut too soon.  Investors began the year predicting 6 cuts starting in Mar & Fed officials have been pushing back on those expectations for the last month.  That includes Fed Chair Jay Powell, who said last week that a Mar cut is "probably not the most likely case or what we'd call the base case."  He also made the same point in an interview on TV last Sun night.

Fed’s Barkin says it makes sense to be ‘patient’ on rate

Inflation is coming down faster than most economists expected, but Americans hoping for a widespread drop in prices may be disappointed, according to Treasury Secretary Janet Yellen.  While testifying before the Senate Banking Committee, Yellen admitted that prices for most items are unlikely to return to where they were before the inflation crisis began in 2021.  "I don't expect the level of prices to go down. Some prices will be higher than they were before the pandemic, and will stay higher," Yellen said during a contentious exchange with Sen John Kennedy.  "But wages have risen considerably, and the pace of price increases has now receded over the past six months."  Prices for everything including groceries, new cars & health insurance surged in 2021 & 2022 as the result of rampant inflation, which was caused by pandemic-induced disruptions in the global supply chain, an extremely tight labor market & increased consumer demand fueled in part by stimulus cash.  But even though the pace of inflation has cooled sharply in recent months, prices for most goods have not yet receded, &  unlikely to do so, Yellen added.  "We don't have to get the prices down, because wages are going up," she said, noting that the median worker in the US can buy the same basket of goods as they did in 2019 with $1400 leftover.  "So Americans, on average, are better off in spite of the fact that the level of prices is higher."  While inflation has fallen considerably from a peak of 9.1% notched during Jun 2022, it remains above the Federal Reserve's 2% goal.  When compared with Jan 2021, shortly before the inflation crisis began, prices are up a stunning 17.6%

Janet Yellen warns high prices could be here to stay

The number of Americans filing new claims for unemployment benefits fell slightly more than expected last week, pointing to underlying labor market strength despite a recent surge in announced layoffs, mostly in the technology industry.  The report from the Labor Dept also showed unemployment rolls shrinking a bit in late Jan after swelling to a 2-month high earlier.  Labor market resilience is underpinning the economy & the latest claims readings suggested that the strong economic growth momentum from the 4th qtr continued in early 2024, potentially delaying an anticipated interest rate cut this year.  Initial claims for state unemployment benefits dropped 9K to a seasonally adjusted 218K last week.  The decline reversed the bulk of the prior week's increase, which had lifted claims to just over a 2-month high.  Economists had forecast 220K.  Claims are little changed compared to the same period last year.  Unadjusted claims dropped 31K to 232K last week amid sharp declines in filings in California, Ohio, Oregon, New York & Pennsylvania.  The decreases in these starts partially unwound surges in the prior week.  Applications in Oregon had soared in the prior week, attributed to layoffs in the construction & healthcare & social assistance industries.  The jump in New York was blamed on layoffs in the transportation & warehousing, construction as well as healthcare & social assistance industries.

US Weekly Jobless Claims Fall More Than Expected

Gold closed lower as the $ rose after the US reported fewer than expected initial jobless claims last week, showing continuing strength in the labor market.  Gold for Apr closed down $3 to settle at $2047 per ounce.  The Labor Dept said initial jobless claims last week fell to 218K from 224K a week earlier, while the consensus expectation called for 220K new claims.  The robust data is the latest sign the US job market is not cooling despite high interest rates & the strength could push off expected cuts to US rates.  The $ moved higher following the data, making gold more expensive for intl buyers.  The ICE dollar index was last seen up 0.1 points to 104.16.  Treasury yields were mixed, with the 2-year note last seen unchanged at 4.446% while the yield on the 10-year note was up 5.5 basis points to 4.151%.

Gold Closes with a Small Loss as Fewer than Expected New Job Claims Boosts the Dollar

West Texas Intermediate (WTI) crude oil rose for a 4th-straight session on signs of higher demand after the Energy Information Administration a day earlier said inventories of refined products fell despite a rise in crude oil stocks, while Mideast tensions continue.  West Texas Intermediate crude oil for Mar closed up $2.36 to settle at $76.22 per barrel, while Apr Brent crude, the global benchmark, was last seen up $2.39 to $81.60.  The rise comes after the EIA offered traders some good news on demand, with gasoline stocks dropping 3.1M barrels last week & distillate inventories down 3.2M barrels, rose a more than expected 5.5M barrels & production returned to a record 13.3M barrels per day.  Geopolitical risks are also supporting prices, as Israel rejected a cease-fire offer from Hamas.  However Secretary of State Antony Blinken said the Hamas offer contained some "delusional" conditions but the offer created space for further negotiations.  However Israel's rejection of the offer triggered algorithmic buying, adding upward pressure on prices.   

WTI Crude Oil Rises for a Fourth Day on Higher US Refined Product Demand and Mideast Tension

Today investors were thinking more about interest rates cuts being slowed by the Fed.  As a reminder, those guys will offer simple advice that they are not allowed to forecast specifics about rate changes because they are dependent on future economic data.  Even the smartest don't know everything.  Stock averages remain essentially at record levels which should provide a small degree of comfort for the time being.

Dow Jones Industrials