It's hard for the Fed to sound too hawkish right now, says BofA's Mark Cabana

Core Viewpoint - The Federal Reserve is currently experiencing a divided stance among its members regarding interest rates, influenced by upcoming economic data and the recent government shutdown that has delayed critical reports [2][3][4]. Group 1: Federal Reserve's Position - The Fed is facing challenges in providing clear guidance due to a backlog of economic data caused by the government shutdown, with significant reports on jobs, CPI, and retail sales expected soon [4][5]. - There is a concern about the unemployment rate, which is projected to rise to 4.5%, and any increase beyond that could shift the Fed's tone towards a more cautious approach [6][7]. - The market currently anticipates that the Fed has concluded its rate hikes, but if unemployment continues to rise, the Fed may need to adjust its strategy, potentially leading to rate cuts [7][8]. Group 2: Economic Data and Projections - The upcoming economic data, particularly the unemployment rate, is critical for the Fed's decision-making process, as hiring has slowed and the labor market remains a concern [5][6]. - The Fed's projections indicate a cautious outlook, with expectations that inflation will decrease as tariff effects dissipate, which could allow for future rate cuts [9][10]. Group 3: Treasury and Market Dynamics - The Fed's recent actions, including large-scale asset purchases, are aimed at stabilizing money market rates rather than signaling a shift towards quantitative easing [13][15]. - The Treasury's strategy of issuing more short-term T-bills while reducing long-term issuance is seen as a way to manage duration risk in the market, which aligns with the Fed's objectives [16][18]. - The combination of actions from both the Fed and the Treasury is expected to ease financial conditions, although the Fed maintains that its actions are independent of broader asset price movements [19][20].