Chair Powell sticks to Post Policy Narrative | Data Dependence to inform Policy | Wondering if recent data is just "bumps" in the overall progress and Summary of Key Levels

Overnight USD index plummeted and closed at the lows of the day at 104.23 on a soft Services ISM Print. Likewise , US yields surged on strong ADP numbers (actual 184K , prev 140K) but closed a tad bit softer compared to the previous day. Chair Powell's Remarks were in line with the narrative from the earlier post policy conference to which the markets reacted positively. Fed Fund Futures are pricing in 71 bps of rate cuts into 2024 from yesterday's 69 bps. US2s10s bear steepened 1.30 bps. Gold has not seen a meaningful pull back and continues to surge ahead. 

Key highlights of the ISM print

Headline PMI registered 51.4% in March, indicating expansion in the services sector for the 15th consecutive month. In February, the PMI was 52.6 percent.

Employment Challenges: The Employment Index contracted to 48.5% in March, marking the third contraction in four months. In February, the index was at 48%.

Supply Chain Concerns: The Supplier Deliveries Index registered 45.4% in March, indicating faster delivery performance for the second consecutive month. In February, the index was at 48.9%. Additionally, respondents expressed concerns about potential disruptions in the supply chain, such as the Red Sea turmoil and unrest in Haiti.

Inflation: The Prices Index decreased to 53.4% in March, reflecting its lowest reading since March 2020. However, respondents still indicated inflation as a concern across multiple sectors. In February, the index was at 58.6%.

Economic Volatility Preparation: Respondents mentioned preparing for economic volatility in the second half of the year, with cost reduction initiatives remaining a top priority for companies.

Chair Powell's Remarks - Technical Competence and Objectivity drive Policy Decision making / Fed is an independent body and political matters are not a consideration set

Fed Chair's remarks were in line with the recent narrative and did neither raise an alarm of the recent strength in the inflation and employment numbers nor dismissed the reading but remained squarely focused on data dependence to guide Fed's hands and acknowledged the possibility that the recent data could just be a bump and Fed needs more confidence on the sustainability of the progress to warrant rate cuts in the later part of the year.

"The recent data do not, however, materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path. Labor market rebalancing is evident in data on quits, job openings, surveys of employers and workers, and the continued gradual decline in wage growth. On inflation, it is too soon to say whether the recent readings represent more than just a bump. We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy."