Stocks closed lower yesterday ahead of this afternoon's FOMC Announcement.

Like the day before, crude oil rose as a result of increasing tensions in the Middle East and worries over new and prolonged supply disruptions.

And Treasuries rose, with the 10-year briefly hitting 5.041%, before closing at 4.996%. The intraday print was the highest level since July 2007.

As mentioned yesterday, there are plenty of reasons why yields are rising. And not just here, but globally. For one, massive Treasury issuance is flooding the market, which is causing U.S. yields to rise. That too causes other yields to rise as capital flows force convergence.

There's also massive corporate borrowing for AI and data center buildouts, which competes directly with Treasuries. That also leads to increased yields.

Higher inflation is also one of those catalysts for higher yields. Last week's inflation reports showed wholesale inflation (PPI) rising faster than expected, but retail inflation (CPI) was more subdued and actually showed annual core inflation easing.

But expectations remain high that the Fed will raise rates by a quarter-point at this afternoon's FOMC Announcement. Per the CME FedWatch, probabilities for a rate hike stand at 92.4%.

If they do, it would be the first rate hike since 2023.

Ironically, it would come under new Fed Chairman Kevin Warsh. President Trump has advocated for lower rates. Same with Treasury Secretary Scott Bessent. It's not a done deal. But 92.4% is pretty close.

However, if they do raise rates, which is widely expected, it might be viewed as welcomed news by the market. Yields have been climbing higher on their own without the Fed. And a rate hike would align with the market, and underscore the Fed's independence, and prove their commitment to fighting inflation.

The key question, however, is whether the Fed signals more tightening ahead, or hints at a pause afterwards (one and done). Some are now suggesting the Fed might hike two times this year. And some are even suggesting three. Although, I think that's a stretch.

But it shows that what the Fed signals comes next is probably more important, and could have a greater effect on the market, than if they raise. But Mr. Warsh?s preference for not providing much forward guidance on future rate decisions will make that tougher to glean.

The Announcement comes out this afternoon at 2:00 PM ET, which is then followed by the Fed Chair Press Conference at 2:30. (The latter will also be closely watched as viewers will try and infer from his statement and answers if the Fed is leaning one way or another.)

In other news yesterday, the Empire State Manufacturing Index fell to 7.6 vs. last month's 20.6 and views for 14.1.

Today, in addition to the Fed events, we'll get MBA Mortgage Applications, Retail Sales, Import and Export Prices, Business Inventories, and the Housing Market Index.

And, of course, the market will be listening for any news out of the Middle East, and how it might the oil market, and thus inflation.

See you tomorrow,