MBS pretty flat at -5 bps on the open. Bonds were slightly weaker overnight with more of the losses seen during Asian market hours for a change (European hours have accounted for most of this week’s overnight movement).

Monthly Core PCE= 0.3 vs 0.3 f’cast [0.2 prev]

Annual Core PCE= 4.4 vs 4.4 f’cast [4.7 prev]

Incomes = 0.2 vs 0.2 f’cast Spending = -0.2 vs -0.1 f’cast

The year over year change of 4.4% was the smallest rise since October 2021. Even though there is decline and inflation seems to be falling, inflation will likely remain above the Fed’s target this year, which means they’ll most likely remain dedicated to a target rate near 5%.

The goods inflation and supply chain issues seem to be in the past – remember the big chip shortage? Intel is swimming in excess inventory. Commodities like lumber are back at pre-pandemic levels. Housing inflation will stop bumping up the inflation numbers during the summer. The final leg is incomes, which have been falling for 3 months. The Fed seems to have gotten a hold of inflation and its work is largely done. Does that mean prices will return to pre-pandemic levels? No. The inflation of the past year means that prices have hit a new, higher plateau.

Pending Home sales rose 2.5% in December, after six straight months of declines. Year-over-year, transactions are still down by a whopping 33.8%. That said, it looks like the nuclear winter in housing is over.

The two reports most capable of surprising the market this week were Thursday’s GDP and Friday’s PCE.  While it’s always good to maintain some respect for potential surprises, weren’t looking for any major revelations in terms of the market’s reaction.  By some combination of their 2nd tier nature and the fact that they came in close to consensus, these reports caused no regret for those who hit the snooze button on this week’s volatility risk.

In short, this week has been every bit the snooze-fest we suspected it might be.