LOOK AHEAD: Friday Data Calendar: Core PCE, GDP, UofM Sentiment, UofM Inflation

In a speech largely devoted to banking regulation (speech text here), Cleveland Fed President Hammack (2026 FOMC voter, hawk) makes the case for "err[ing] on the side of patience" when it comes to rate-setting. We continue to believe that she is not supportive of any rate cuts this year, and is perhaps the biggest hawk on the FOMC at present.

• She says "the outlook is brightening. Recent readings on economic growth have been encouraging, and the labor market appears to have stabilized. Many forecasts, including my own, call for some easing in inflation over the course of this year. At this point, I believe monetary policy is in a good place to stay on hold as we assess the incoming data and weigh if, and how, policy may need to adjust further."
• Putting a finer point on it: "Based on my forecast, we could be on hold for quite some time." And with policy "now in the vicinity of neutral, meaning it’s not meaningfully restraining the economy", she hints that rate hikes as well as cuts could come into play: " Right now, I see the risks of a higher or lower path for the funds rate as about balanced." (In December she said "we've got policy that's in that range of neutral...I would prefer to be on a slightly more restrictive stance".)
• "If we see progress on both sides of our mandate, that tells me that our policy rate is already at the right setting and that we should hold it there. Rather than trying to fine tune the funds rate, I’d prefer to err on the side of patience."
• Overall her base case appears to be optimistic on both dual-mandate fronts: "Brighter growth prospects should translate into stronger demand in the labor market, helping to reduce the unemployment rate over the course of this year. Inflationary pressures should start to ease as tariff rates stabilize."
• However, "there are no guarantees when it comes to forecasts, and there are considerable uncertainties around mine. Ultimately, I want to see evidence that inflation is, indeed, coming down. There’s a risk that inflation could persist near 3 percent through this year, as it has for the past two years. Or inflation expectations could show signs of becoming unanchored if the public sees the elevated readings of the last five years as a sign that policy is not committed to achieving our 2 percent goal. On the other side, stabilization in the labor market could give way to additional softening if economic growth disappoints."
• She name-checks the "K-shaped economy” and the “low-hire, low-fire”, "roughly balanced" labor market (with the December unemployment rate "close to what I and many economists think of as a long-run equilibrium").
• To her, "inflation is still too high", and "the longer that inflation remains at these levels, the greater the risk that it becomes entrenched in the economy".
• On tariffs, "While some firms have already passed these costs along, others say that more price increases are coming." And "Tariffs are top of mind for many businesses, but they aren’t the only source of inflationary pressures. Rising prices for health insurance and electricity are also pushing up costs. At this point, it’s too soon to say if these broad cost pressures have peaked."

Tsy futures remain supported - but off session highs after huge (50k each) TYH6 & FVH6 sales, curves flatter ahead of the $58B 3Y note auction (91282CQA2) at 1300ET, WI is currently at 3.514%, 9.5bp rich to last month's sale. Results will be available shortly after the competitive auctions closes at 1300ET.

• January auction recap: Treasury futures held modestly weaker (TUH6 104-07.25, -.25, 1TYH6 -3 at 112-04) after the $58B 3Y note auction (91282CPT2) drew 3.609% high yield vs. 3.610% WI; bid-to-cover held steady at 2.65x.
• Peripheral stats: Indirect take-up retreated to 56.50% vs. 71.97% prior; direct bidder take-up at 29.5% from 19.0% prior; primary dealer take-up 14.0% vs. 9.03% prior.

• SPX emini and Nasdaq indexes are trading near steady to mildly higher Tuesday, while the DJIA climbs to a new record high of 50,512.79 early in the first half before scaling back support ahead midday.
• Currently, the DJIA trades up 271.38 points (0.54%) at 50407.17, S&P E-Mini Futures up 9 points (0.13%) at 6992.75, Nasdaq up 1.4 points (0%) at 23242.44.
• Utilities and Consumer Discretionary sector shares led advances in the first half: Vistra Corp gained +3.89% after upgrades from Goldman Sachs and Jefferies, Dominion Energy +1.91%. Sempra +1.87% and Eversource Energy +1.81%.
• Mostly travel related shares buoyed the Consumer Discretionary sector in the first half: Marriott International +9.21%, Hasbro Inc +6.93%, Lululemon Athletica +4.84%, Norwegian Cruise Line +4.64% and Expedia Group +3.96%.
• Meanwhile, a mix of IT & Financial Services sector shares underperformed: Western Digital -7.76%, Raymond James Financial -6.82%, Incyte Corp -6.48%, Charles Schwab -6.41%, Moody's Corp v-6.24%, Seagate Technology -5.74% and Monolithic Power Systems -5.48%.