The minutes of the Federal Reserve’s January 31-February 1 meeting released last week said we can expect another interest rate increase “fairly soon,” which many people think means at the March 14-15 meeting, just two weeks away. But the bond market doesn’t seem to be buying it. Why not?
According to the minutes, “many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations or if the risks of overshooting the committee’s maximum-employment and inflation objectives increased.”
At her Congressional testimony a week earlier, Fed Chair Janet Yellen was even more hawkish, warning that “waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession.” That doesn’t sound like someone who’s willing to wait until May, the Fed’s next monetary policy meeting after March (there’s no meeting in April). Continue reading "Why Doesn't The Bond Market Trust The Fed?"→
You may not have noticed it, but before last Wednesday the bond market had been in kind of a mini-rally for the previous month. On Tuesday, the benchmark 10-year Treasury note fell to 2.32%, its lowest level since the end of November. That was down from 2.60% in mid-December, which also happened to be its highest mark since 2014.
But by the end of the week the yield on the 10-year had jumped back up to 2.47%, up 15 basis points in just three days. What happened to put the brakes so suddenly on this rally? Why, Janet Yellen spoke, and when Janet Yellen speaks – well, you know the rest.
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