To: <\/strong><\/em>\u201cEmployment and inflation goals have moved toward better balance over the past year.\u201d<\/em><\/p>\n This is a slight retreat from the earlier past-tense language and positive tone, perhaps slightly hawkish.<\/p>\n <\/p>\n <\/p>\n The Fed laid out details on beginning the tapering process (starting next month) for Quantitative Tightening (QT). They will reduce the amount of Treasury run-off from $60 billion per month to $25 billion, slightly below the market\u2019s expectation of $30 billion. The MBS run-off will remain at $35 billion if prepayments deliver, and any excess run-off over that cap will be reinvested into Treasuries.<\/p>\n The lower cap will allow more Fed purchases which should be supportive of the intermediate part of the yield curve. \u00a0Who\u2019s going to buy all the bonds? Well, looks like the Fed for starters!<\/p>\n Futures pricing before the announcement had the first full 25bps rate cut at the December meeting, with the 2025 year-end rate at 4.50%, implying three rate cuts next year. It\u2019s remarkable to consider that coming into the year, futures were projecting more than six cuts, and now we\u2019re hanging on by a thread to a single end-of-year cut with only three more projected next year (see table below).<\/p>\n <\/p>\n \u00a0<\/strong><\/p>\n <\/p>\n With the fears of a hawkish tone relieved, and QT tapering next month, Treasuries rallied following the presser. The S&P rallied initially but gave back the runup, reversing and finishing red on the day.<\/p>\n In summary, the Fed delivered an as-expected meeting, recognizing the lack of improvement in inflation this year, which will keep the first rate cut on ice until much later in the year. While a rate hike wasn\u2019t ruled out, Powell called it \u201cunlikely\u201d. In my mind, this comment increases the bar for further hikes drastically.<\/p>\n <\/p>\n \u00a0<\/strong><\/p>\n We continue to be surprised at the overall dovishness of the Fed. They persist in \u201ctrusting\u201d that inflation will slow despite a recent lack of progress and, arguably, an uptick higher. Even with reaccelerating inflation, the Fed is going to taper its QT program more than expected. Keep in mind that the balance sheet remains substantially higher than it was pre-pandemic (~80% higher). QT was a good run!<\/p>\n <\/p>\n <\/p>\n I believe that Powell\u2019s comment, \u201cThere are paths to cutting and there are paths to not cutting, it is really going to depend on the data\u201d, relays that the Fed is hoping to cut.<\/p>\n All in all, in my opinion, the Fed\u2019s communication shows they would prefer to take a stance of not damaging the economy even if inflation is stuck at higher levels than they\u2019d prefer. My non-consensus view is that the Fed has taken a stance to not move the inflation target in name but by action and tolerate it at higher levels for longer \u2014 so far, they are getting away with it!<\/p>\n \u00a0<\/strong><\/p>\n <\/p>\n Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Forward-looking statements cannot be guaranteed.<\/em><\/p>\n This commentary offers generalized research, not personalized investment advice. It is for informational purposes only and does not constitute a complete description of our investment services or performance. Nothing in this commentary should be interpreted to state or imply that past results are an indication of future investment returns. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with an investment & tax professional before implementing any investment strategy. Investing involves risk. Principal loss is possible.<\/em><\/p>\n Advisory services are offered through Aptus Capital Advisors, LLC, a Registered Investment Adviser registered with the Securities and Exchange Commission. Registration does not imply a certain level or skill or training. More information about the advisor, its investment strategies and objectives, is included in the firm\u2019s Form ADV Part 2, which can be obtained, at no charge, by calling (251) 517-7198. Aptus Capital Advisors, LLC is headquartered in Fairhope, Alabama. ACA-2405-4.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" As expected, the Fed kept its Funds rate range unchanged at a 5.25% – 5.50% level. Powell\u2019s comments were less hawkish than feared, but there was disappointment expressed regarding the inflation news thus far in 2024. The Fed subtly walked back its last statement regarding the improving inflation situation. From: \u201cThe Committee judges that the […]<\/p>\n","protected":false},"author":14,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","content-type":"","inline_featured_image":false,"footnotes":""},"categories":[20,128],"tags":[84,187,252],"class_list":["post-235992","post","type-post","status-publish","format-standard","hentry","category-blog","category-bonds","tag-bonds","tag-quantitative-tightening","tag-stagflation"],"yoast_head":"\nQuantitative Tightening (QT) Plans<\/strong><\/h5>\n
![\"\"](\"https:\/\/aptuscapitaladvisors.com\/wp-content\/uploads\/2024\/05\/World-interest-rate-probability_Bloomberg-5.1.24.png\")
Source: Bloomberg as of 05.01.2024<\/em><\/p>\nMarket Reaction<\/strong><\/h5>\n
Closing Thoughts<\/strong><\/h5>\n
![\"\"](\"https:\/\/aptuscapitaladvisors.com\/wp-content\/uploads\/2024\/05\/Total-assets_FRED-5.1.24.png\")
Source: FRED as of 05.01.2024<\/em><\/p>\nDisclosures<\/strong><\/h5>\n