Recent disinflationary trends appear to have stalled in January as CPI data came in hotter than anticipated. While the labor market remains solid, job creation slowed, reflecting an improved balance between supply and demand for workers. The transition to Trump’s administration appears to have ushered in a marked shift in fiscal policy. Yet, it is the Chandler team’s view that monetary policy will remain focused on the Fed’s dual mandate of full employment and price stability. As such, we expect gradual normalization of monetary policy and a steepening yield curve.
As broadly anticipated, the Federal Open Market Committee (FOMC) left the Fed Funds Rate unchanged at the range of 4.25-4.50% at the January meeting. Chair Jerome Powell reiterated previous statements indicating the economy is in a good place and that monetary policy is well positioned, adding that the committee is in no hurry to make any changes to monetary policy. The Chandler team believes monetary policy easing will continue at a slower cadence, as changes to fiscal policy begin taking shape in 2025.
US Treasury yields shifted slightly lower in January. The 2-year Treasury yield declined 4 basis points to 4.20%, the 5-year Treasury fell 5 basis points to 4.33%, and the 10-year Treasury yield dropped 3 basis points to 4.54%. The spread between the 2-year and 10-year Treasury yield points on the curve increased slightly to +34 basis points at January month-end versus +33 basis points at December month-end. The spread between the 2-year Treasury and 10-year Treasury yield one year ago was -30 basis points. The spread between the 3-month and 10-year Treasury yield points on the curve was +25 basis points in January, unchanged from December.