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Fed Vice Chairman Stanley Fischer on Monday acknowledged the Fed is not too far from meeting its target for inflation, the side of its dual mandate that has lagged while employment has been strong. That has also allowed the central bank to bide its time while monitoring the global economy and impact of financial market turmoil.
"I think you have a situation where all you need is oil prices to stop going down, and the rate of change starts going higher. You'll have north of 2 percent in headline inflation by the second half of this year," said Boockvar. "I think Stanley Fischer is acknowledging it."
The recent run of better-than-expected economic news, like Friday's report of 242,000 new jobs in February, and better durable goods orders and ISM manufacturing data, have all been changing the market's perception of Fed rate increases. Before the PCE was reported Feb. 26, the market was expecting just about a 35 percent chance of a Fed hike in December, but that has clearly changed and Friday's jobs report gave it a final push.
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As fed funds futures have finally moved to price in a rate hike for 2016, Treasury yields have also shifted higher. The Fed-sensitive two-year yield was as high as 0.91 percent Monday. While there is little data to move yields this week, there are three key auctions, starting with the $24 billion three-year note auction Tuesday at 1 p.m. ET. There are 10-year and 30-year bond auctions Wednesday and Thursday, respectively. There is a report on small-business sentiment at 6 a.m. Tuesday.
Stocks rose Monday, with the S&P 500 at 2,001, a less than 2-point gain. Oil helped put a bid in equities, with West Texas Intermediate crude jumping another 5.5 percent to settle at $37.90 per barrel, its highest settle since Dec. 24.
While there's been a surge in some commodity prices, analysts are divided on whether a bottom is in.
"I think it's an open debate whether or not an upward trend has started, but I do think we've seen the bottom. I think what commodities markets are trying to do right now is carve out a trading range. That's the current state," said Ward McCarthy, chief financial economist at Jefferies.
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McCarthy expects the Fed to next raise rates in June and then hike again before the end of the year. "The rocky road to normalization is paved with inflation," he said. "We've already seen I think a bottom (in commodities). I think it's going to be choppy for a while but by the end of the year, we'll be above 2 percent on the CPI and that will not be transitory. That will be a significant development."
Commodities have been lifting off, but at different paces. Copper futures are up 6.7 percent since the year began, while gold futures are up nearly 20 percent. Oil, meanwhile has been on a tear with WTI up 45 percent from its Feb. 11 low of $26.05.
The 20 percent jump in iron ore prices in Asia on Monday spurred more talk about whether commodities are ready to turn higher. Iron ore surged to a nine-month high as China's National People's Congress met, sending out dovish signals and speaking about spending on the economy. But Goldman Sachs analysts were skeptical and said in a note that the gains won't last unless there's a significant pick up in Chinese steel demand. Ore was reported to have risen to $63.74 per metric ton in Qingdao.
"I think it's premature on the bigger picture. I'm still not certain on the oil for one and copper for another, and whether these are just some major short covering rallies," said Peter Hug, global trading director at Kitco. "These commodities have just been slammed. ... It's early days. Nothing has really changed. I didn't see anything overnight where everybody should be optimistic."