Stocks & Bonds winning on the open. MBS up 16. Stocks up 12.5

Bonds were flat to slightly stronger in the overnight session with minimal volatility and average volume.

Core Producer Prices, m/m = 0.2 vs 0.2 f’ast/prev

Core Producer Prices, y/y = 2.8 vs 2.9 f’cast, 3.2 prev

Over 40% of the May increase in prices for final demand services can be attributed to margins on autos and auto parts.

The Fed decision is due at 2:00 pm today, and Jerome Powell will hold a press conference afterward. The Fed Funds futures overwhelmingly see the Fed maintaining the current Fed Funds range of 5% – 5.25%. The consensus seems to be the Fed will do a hawkish pause, meaning they will skip hiking this meeting and leave the door open for another hike in July. We probably aren’t going to get an all-clear signal out of them.

The dot plot will be the focus for the markets. The March dot plot showed the majority of members saw the end-of-2023 Fed Funds rate in the current range.

Reprice risk today is high of course, especially this afternoon when the Fed meets. Fed statement at 2pm Eastern, press conference at 2:30pm Eastern. Buckle up. Remember to have a plan for each loan going into this afternoon, because we are likely to see an initial reaction after the policy statement at 2pm but then could see a totally different reaction at the press conference – so you may or may not want to lock at the first sign of trouble

Four times a year, the Fed updates its SEP (Summary of Economic Projections) which detail the “most likely outcomes” for several metrics including the end-of-year Fed Funds Rate.  While Powell has been clear in repeating this is not a prediction, no one else is really sure what else it would be.  Today’s dots (the “dot plot” used to convey the rate outlook) showed another 0.50% in rate hikes by the end of the year.  Bonds ended the day in slightly stronger territory because the change in the dots was widely expected and already traded into prevailing levels.

MBS were net up 5 bps on the day.   Stocks pretty much flat – up 4 points.

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