With payrolls so close, people are looking at risk/reward and deciding to be safe.
Claims took people by surprise. It makes it clear the Fed has not gone too far.
It's hard to look at this report and be even more convinced that if housing slows down, there's nothing to replace it in terms of labor income. It leans slightly more to the bearish than the bullish side for the market.
The bid-to-cover improved a lot, reflecting a reasonable appetite for the two-year notes.
The front end of the curve tried to rally a little bit and there was a trade down in the belly of the curve. We expect the Fed to cut rates another quarter-percentage point in January and for federal funds to be at 1.5 percent in the middle of 2002. We're looking for a recovery in the third quarter of next year.
Broaddus just reminded everyone that the Fed is going to raise rates. He is clear that the inflation data has got their attention and that the Fed is much more wary of inflation.
The data are a disaster for the recovery story. It suggests that once the stimulus to consumption fades there won't be the hiring there to replace it.
That made a lot of people think that the Fed couldn't wait until March 20.
The obvious point to take from this meeting is that the Fed is giving the bond market no indication they are close to being done.
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