Bond market volatility has particularly been off the charts in the weeks leading up to this Fed meeting! The last rate hike was before the crisis in 2008. Today was the first time since when there was a remote possibility of one. But here we are, delayed again.
Interestingly, according to bond market analysts, a near certainty for a hike had been priced into the market for September’s meeting. Near-term yields were also trading as if investors saw a strong possibility of a rate hike announcement today. The U.S. Treasury bond has yielded over 3% for the last two weeks straight and moved higher into decision time.
Ultimately it’s no big surprise to the markets that rates were left unchanged today. And the vote on the policy was unanimous. But the policy statement still implies two rate hikes before the end of the year. This means that a rate hike is a near-certainty by the September FOMC meeting with another in December.
Still, they reduced their outlook for continued hikes into 2017. Their benchmark estimate for the end of next year is 1.625%, down from March’s forecast of 1.875%. For 2017 it’s down to 2.875% from 3.125%.
In the past, when the Fed changed policy and started moving rates higher, they didn’t end with a couple moves but made several hikes over many months. In fact, the last time the Fed started raising rates in June 2004, they finally stopped after the June 2007 meeting after 17 hikes!
Interest rates appear to be backing off this afternoon after climbing leading up to the meeting. Janet Yellen didn’t really say anything she hasn’t said before. As expected, lots of talk and still no action.
So in the meantime, economic data will continue to drive the markets and the speculation will continue. This is good news for those seeking continued volatility in the interest rate markets! Those seeking to profit from this volatility will have plenty of opportunities between now and the next Fed meeting.
Editor, Dent Digest Trader