Is a July rate increase back on now because of the strong June jobs report? If not July, then September?
June’s unexpectedly strong 287,000 gain in nonfarm payrolls – more than 100,000 above Street forecasts – has some people believing that the Federal Reserve will now once again change its mind and increase interest rates sometime this summer, either later this month or at its September conclave.
But the bond market isn’t buying it, and neither am I. The yield on the benchmark 10-year Treasury note ended last Friday at a new record low of 1.36%, down eight basis points for the week. That doesn’t sound like bond investors believe that a rate increase is imminent. And it’s hard to believe that the Fed, which won’t make a move unless the sun, moon and stars are in perfect alignment, will suddenly take the big rebound in nonfarm payrolls as the green light to raise rates. It will take a lot more than that. Continue reading "The Gang That Couldn't Shoot Straight"
Monetary policy, which is also known as interest rate policy, describes the actions or in-actions of a country’s central banks. Interest rate policy generally focuses on maximizing price stability and growth. The central bank of a country is considered the institution that controls a countries currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries.
Each central bank has guidelines that are mandated by their legislature. For example, in the US, the central bank has a dual mandate which is to maximize price stability and employment. Other central banks, such as the European Central bank, have only one mandate which is price stability.
Central banks often spur growth and employment by reducing interest rates, making it easing for banks to lend money at reduced rates. Lower interest rates also increase liquidity, and make purchasing riskier assets a more attractive alternative than holding low interest baring government notes. Continue reading "Trading Using Monetary Policy Analysis"