MUNI Market Update: Fed Holds Steady as Markets Await New Chair Nomination

• We pushed out a piece discussing MUNIs and how money managers believe longer-dated MUNIs offer value here, despite the slight increase in pricing (which we are not seeing).  If you are a MUNI investor looking for value, it would be prudent to seek paper on the longer end of the curve; however, be very careful about credit quality and the insurance company you are buying from.
• We have reported on the congestion pricing fee in NYC in the past. A Federal Judge appeared to be skeptical yesterday, 1/28, of the Trump administration’s attempt to cancel the pricing program just as it is starting to ramp up.  This is a much-needed program to “shore up” the MTA’s issuance of paper. If you are buying NY paper, particularly NYC paper, be aware of this issue currently, as it could negatively impact the bonds.
• As we have seen, Mamdani is amping up pressure on Governor Hochul to hike taxes on the wealthiest residents and corporations in NYC as he faces a mounting budget gap.  We have seen this coming, and it should not come as a surprise to anyone. Again, happy to discuss this issue with you, as it is important to take note, particularly if you are buying NY paper.
• We reported on fund flows: investors in total have added a staggering $2.32 billion to MUNI bond funds over the last week ending 1/21/26.  This is a huge amount compared to previous additions; one of the larger ones before this was 1.59B.  This significant addition to MUNIs has helped create/support pricing, regardless of the issuance increases we have reported in the past.
• As we know, the FED left rates unchanged on 1/28 as expected by all, including us.  The FED, in its minutes, pointed to improvements in the US economy, signaling a more cautious approach to potential future adjustments.  The FED voted 10-2 to hold the FF rates in a range of 3.50-3.75%.  Waller and Miran dissented in favor of a .25% reduction.  We expect a 75bps reduction over the course of 2026, but the timing will be difficult to pinpoint.  If you are borrowing, and as we all know, those rates are adjusted by FF rates, you could see a reduction in cost over the next 11 months.
• Some have asked about another US downgrade coming. Along with others, if this were to happen anytime soon, it would be an unusual move, given that Fitch Ratings stripped the country of its top score.  I suspect the “pressure is there” to look hard at the ratings of the US by S&P. However, we suspect this will hold steady over the near future.
• We have attached a graph on “who will Trump nominate as FED Chair”, it seems like Rick Rieder is the frontrunner, with Warsh a somewhat “close” second.  Should Reider “get the job,” I would expect to see rates move slightly down due to the anticipation of rate cuts.  With Waller’s vote yesterday in favor of lowering rates, some suspect that it would please Trump and would not hurt his “candidacy” for FED Chair.
• Waller’s dissent is consistent with his recent assent to the date. After the December 2025 meeting, Waller stated “rates are still 50-100bpps” above neutral, and he did not anticipate inflation to reaccelerate. He also described the labor market as very soft; however, these concerns may have eased after the unemployment rate fell to 4.40% in December.

Bottom Line

Rates are slightly up this month in my opinion by about 5bps across the board. January will be a flat-to-slightly-down month for pricing; credit quality continues to improve in selected paper. We are very active across the curve; however, we caution those who are buying paper to be mindful of credit quality. Will be interested to see how the market will react once the new FED Chair is nominated, which should be any day, I would think. As always, we welcome the opportunity to speak to you about your needs and objectives. Thank you for your time reading this and your interest in DRL.

Who will Trump nominate as Fed Chair?