- It has been a while since we have seen these numbers: Benchmark 10-year state yields: CA 3.17, FL 3.08, IL 4.21, NY 2.98, PA 3.19, and TX 3.07. I remember when these were <1.75% except for IL.
- Last week's Fed move of 75bps was the most significant change since 1994 and signaled a more aggressive approach to dealing with inflation. Jerome Powell reiterated his determination to curb the hottest inflation in 40 years and said the US Central Bank's commitment encourages the world to hold and transact in dollars. The target rate is 2%, and they are seeking price stability which will provide worldwide confidence in the dollar as a store of value.
- Goldman Sachs economists cut their US growth forecast and warned that the risk of recession is rising. This point is not new, as they indicated the exact prediction about four weeks ago in an interview with Chairman Powell. The Goldman team sees a 30% probability of entering a recession over the next year, up from 15% previously. This statement implies a 48% cumulative probability in the next two years versus 35%. The main reasoning behind their comments is that the baseline growth path is now lower, and they are becoming increasingly concerned that the FED will feel compelled to respond as forcefully as they did last week.
- Sales tax revenues continue to be strong, increasing 21% to $357.3B in the first Q compared to the same period last year. Tax receipts rose $62.7B from last year and $21.2B or 6.3% from the previous Q. These numbers continue to be strong for MUNIs; as I've said before, we do not have a credit problem, just a pricing issue.
- Over the past week, evidence showed signs of cooling in the economy, particularly in the housing market. The 30-year mortgage rate reached 6% after the FED hike last week. Many, including me, expect declines over the next few months.
- President Biden indicated he would decide this week whether to move to suspend the FED Gas Tax in a bid to ease the impact of increased pricing at the pump. This move will likely require Congressional signoff, should he go this route.
- I suspect the FED will not only be watching inflation but also the inability of companies to tap the credit markets based on higher rates. Should this happen, many believe the FED will reconsider hikes as aggressively as last week; this is not a near-term issue right now; however, the FED will eye it as rates increase.
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