Trading Desk Talk

Friday

Last week was historical from at least three standpoints: 1) Ben Ogden clinched the silver medal in cross-country skiing, ending a 50-year drought for the U.S. in podium appearances in that sport; 2) the Consumer Price Index (CPI) was released only for the second time in history on a Friday; and 3) Rebecca Black released her hit song “Friday” 15 years ago. Black, much like a handful of members at the Federal Reserve, likely thinks that after trending upwards since March 2025, inflationary pressures now “gotta get down on Friday.”

The food and housing indices—a focus of White House efforts to control living costs—both improved, with food adding just 0.2% in January from 0.7% in December, while the broad housing index rose just 0.2%, down from 0.4% in December. Gasoline prices, for their part, declined by 3.2%, following last month’s 0.3% drop.

The downshift in the housing index is important not only because it affects nearly every American, but also due to its major contribution to CPI: Housing commands about 45% of the total. Indeed, owners’ equivalent rent (OER)—which has historically drawn the ire of officials at the Federal Open Market Committee (FOMC)— contributes only about half of what housing does.

In past Talking Points, we noted that OER tends to trend until an exogenous shock turns its course. This index is also still relatively weighty in the CPI, so its pace garners much attention for rate-cut hopefuls. OER increased at a slower annual pace in January (3.3%) but is still clearly buoying CPI above the Fed’s 2% target (Figure 2). Nevertheless, inflation seems to be moving in the right direction.

Fed officials, meanwhile, continue to emphasize their focus on incoming economic data. We included some quotes below:

• Beth Hammack, president of the Cleveland Fed (and FOMC voter), said that Wednesday’s jobs report “looks to me like we have a labor market that’s now finding that healthy balance of where we want it to be. Inflation is still too high … Rather than trying to fine tune the funds rate, I’d prefer to err on the side of patience, as we assess the impact of recent rate reductions and monitor how the economy performs. Based on my forecast, we could be on hold for quite some time.”
• Jeffrey Schmid, president of the Kansas City Fed, said that “in my view, further rate cuts risk allowing high inflation to persist even longer. With growth showing momentum and inflation still hot, I’m not seeing many indications of economic restraint.”
• Lorie Logan, president of the Dallas Fed (and FOMC voter), said she’s hopeful inflation will continue to come down, though it would take “material” weakness in the labor market for her to support more interest-rate cuts.
• Philip Jefferson, Fed vice chair (and FOMC voter), said “I expect the disinflationary process to resume this year, once increased tariffs pass through more fully to prices. In addition, projected strong productivity growth may be a source of further help in bringing inflation down to our 2% target.”

To be sure, much has been made about the pressure that Kevin Warsh, President Trump’s nominee to replace Jerome Powell as Fed chair, is likely to feel from the White House to cut rates. Yet the FOMC, which creates monetary policy by consensus, remains skeptical about the need for further cuts at the moment. At Talking Points, we get to debate what Hammack meant by “quite some time,” while gauging the pace of Jefferson’s “disinflationary process” (Figure 3).

For now, the market is taking note of the apparent resolve of most Fed officials and is holding off on pricing any material change to monetary policy, at least until summer. The somewhat lower inflationary pressures have, in turn, helped buoy optimism that the disinflationary process will take six to 10 more months to get the anticipated 2.5 rate cuts—to the tune of 25 basis points each. That would be a happy Friday, indeed.

FROM THE DESK

Agency CMBS — Ginnie Mae spreads were approximately four bps wider for the week, following last week’s widening. The total retracement in spreads is now around seven bps after the gapping in from the $200 billion social media post. DUS volumes last week came in at about $1 billion, which was light. Spreads are biased wider, although the rally in Treasuries is helping outright borrowing rates.

Municipals — AAA tax-exempt yields decreased throughout the yield curve on a week-over-week basis. Last week saw issuance pick up, with over $10 billion coming to market. Deals coming to market, especially those in the housing sector, saw spreads tighten slightly compared to previous weeks—even with the AAA tax-exempt yield curve decreasing. As issuance continues to pick up, we expect spreads to widen. Municipal bond funds saw their seventh consecutive week of inflows to start the year—totaling $1.6 billion for the week and $10.5 billion year to date, including $233 million directed toward high-yield funds last week. The market continues to see strong bond inflows on a weekly basis, with the average weekly inflow for 2026 at just over $1.76 billion.

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