The Federal Open Market Committee unleashed a sharp change in market expectations following its Wednesday meeting, helping to curtail inflation fears. The idea of the first rate hike being pulled forward into 2023 with a possibility of 2022 elicited a change in the inflation trade and a resetting of market expectations of inflation. While the initial ... READ MORE >
Federal Reserve
A 2021 ‘taper tantrum’? Not likely, but requires monitoring
Over the past month, there has been much speculation by financial market participants that the Federal Reserve is preparing to pare back or change the outright composition of its $120 billion in monthly asset purchases—$80 billion in treasuries and $40 billion in mortgage-backed securities—that have damped rates along the entire maturity spectrum as well as ... READ MORE >
FOMC comment: Fed creates context to end pandemic policy efforts
The Federal Reserve on Wednesday took another step in the long road to policy normalization in the post-pandemic economy. At the monthly meeting of the Federal Open Market Committee, the central bank kept its policy rate unchanged in a range between 0 and 25 basis points. But it is clear that given the accelerating economy, a forecast of higher inflation ... READ MORE >
FOMC preview: Growth and inflation and tapering, oh my!
The Federal Open Market Committee will leave its policy rate unchanged at its meeting this week, but that decision will mask an underlying shift in its economic projections and policies. Consider three areas where this shift is occurring: The dot plot, which shows committee members’ projections for the federal funds rate, will most likely pull forward ... READ MORE >
CHART OF THE DAY: U.S. household net worth surges, but the gains are uneven
The financial condition of U.S. households continued to improve in the first quarter, according to recent data released by the Federal Reserve. The net worth of households increased by nearly $5 trillion, or 3.8%, from the previous quarter to a record of $136.9 trillion, according to the data. On a year-ago basis, U.S. household net worth increased by $25.5 ... READ MORE >
What’s behind the recent decline in 10-year Treasury yields
The yield on 10-year Treasury bonds has dropped nearly 25 basis points to below 1.5%, touching 1.42% overnight on June 11 from its recent peak of 1.74% on March 31. If the initial move up to 1.74% can be rationalized as a response to the risks around higher growth and inflation, then this recent move below 1.5% in the midst of an economic recovery ... READ MORE >
April personal income and spending: Consumers push forward as demand for services surges
Demand for services jumped 1.1% in April as mass vaccinations accelerated, almost surely foreshadowing the coming surge in service spending that will be one of the defining narratives of the economy through the rest of the year. The composition of spending showed that demand for services increased 1.1%, durables rose 0.5% and nondurables dropped 1.3%, ... READ MORE >
CHART OF THE DAY: Manufacturing sentiment remains high as global supply chain constraints cap growth expectations
Surveys carried out by four of the six regional central banks reported elevated manufacturing conditions, though there was some slippage from the lofty levels of the previous month. Rising prices and supply chain bottlenecks were the most likely reasons for the moderation of sentiment, providing confirmation of the difficulty of reviving an ... READ MORE >
Forecasting the dollar in a post-pandemic world
The probability of the economy and financial markets returning to their pre-pandemic state is quite low. Nowhere is this more evident than in trying to estimate valuations of the U.S. dollar. Despite the robust rebound in consumer demand, a sluggish external sector and pandemic-induced economic distortions add a worrisome element to the breadth of the ... READ MORE >
Interest rate update: Recent increase shows progress on the path to normalization
The yield on 10-year Treasury bonds is approaching 1.7%, within 20 basis points of already low pre-pandemic rates. The recent increase in the 10-year is in response to signs of an economic recovery and perceived risks around higher inflation. But sub-2% interest rates on the 10-year Treasury are far from what a healthy economy would support and suggests ... READ MORE >