It Comes Out in the Warsh
No market participants were surprised last Wednesday when the Fed took no action. The press session afterwards was viewed as more hawkish. What was a bit surprising to me is the new Fed Chair’s commitment to the goal of 2% inflation. I believed the 2% target would be revisited but that thought withered with the commentary.
It was mentioned that the 2% target has been elusive for five years. Now we must contemplate what stricter steps may be taken to reach that goal. Since no forward guidance was offered except for a reference to the dot plot, there was more of an emphasis on what may transpire at the next Fed meeting in six weeks’ time. We were not offered any clues. But a rate increase may be more probable on the table.
Rates remain a focus but there have been only subtle changes. The ten-year Treasury continues to hover in the 4.45% range. What is more noteworthy is a flatter yield curve. With the long end under 5%, more issuers may be inclined to tap the market. This trend has been the case on the corporate side. The municipal side has taken a bit of a breather with the holiday, but the pace is likely to pick up again with the July 1 rollover date approaching.
The billionaire’s tax has qualified for the ballot in November in California. With recognition of the growing opposition to the measure, the sponsoring union has now offered to consider a 2% tax on assets instead of a 5% rate. This suggestion is a bit of appeasement. We will see how it evolves. Perhaps, citizens really do not want to see all those tech tycoons departing from the state.
We appreciate all the excitement that the Knicks and the World Cup have created here in New York City. Navigating around town has been a bit more difficult but it is a manageable price to pay. The mayor has been basking in the positive vibrations. We will see how the more tenuous budget balance will hold up in the months ahead. It has been reassuring that the office market is making a comeback, and some new office projects have started. Underpinning all is that employment has been stable.
As for the war or the conflict with Iran, we cannot be certain of the status. It is hopeful that the Strait of Hormuz is open for business. But we are once again on an extended status for a sixty-day period. Many points will need to be negotiated including the fourteen that have been touted so far. If the necessary success is not obtained, are we likely to re-escalate? (I have not contemplated the latter term since Nixon and Kissinger were contemplating bombing Cambodia towards the end of the Vietnam war.)
The only idea we hold near is that we do not want to endure another quagmire.
Enjoy the holiday.
John Hallacy
John Hallacy Consulting LLC
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