Tag: Federal Reserve Chair Janet Yellen

The Odds Of A Fed Rate Hike In June Just Got Smaller

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


Still think the Federal Reserve will raise interest rates at its monetary policy meeting next week? Last Friday’s jobs report for May should make you rethink that notion. But it’s not the only reason.

Prior to the release of the report – which showed that the economy added just 138,000 jobs last month, nearly 50,000 below expectations, while the previous two months were revised downward by 66,000– the market consensus called for the Fed to raise rates by 25 basis points at its June 13-14 meeting. That doesn’t seem like such a sure thing anymore.

After its last meeting on May 2-3, when it took no action on rates largely because of a weaker-than-expected economy in the first quarter, the Fed said it expected the slowdown was “likely to be transitory.” Now, however, we have a pretty substantial body of evidence that indicate fairly strongly, if not consistently, that the slowdown has continued well into the second quarter. Continue reading "The Odds Of A Fed Rate Hike In June Just Got Smaller" →

Did The Fed Jump The Gun? Now What?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


Based on the recent direction of the U.S. economy and the drop in Treasury bond yields to six-month lows, it would appear that the Federal Reserve may have been a little too hasty in raising interest rates and ending monetary accommodation. So how will the markets – both stocks and bonds – react if the Fed has to swallow its pride and need to stuff the genie back in the bottle?

As we know, since Donald Trump was elected last November, the Fed has raised the federal funds rate twice, plus promised at least two more increases by the end of this year. At the same time, it’s also said that it plans to start trimming its massive $4.5 trillion securities portfolio before year-end. All of that action has been predicated on the economy growing and potentially over-heating – i.e., causing too much inflation – under President Trump’s stimulative policies, including tax cuts, deregulation and repealing and replacing Obamacare.

But what happens if those assumptions don’t actually become a reality, which is what seems to be happening right now? Will the Fed suddenly start lowering interest rates again, or at least put off its plans for future rate increases? And will it also put on hold its balance sheet reduction plan? Continue reading "Did The Fed Jump The Gun? Now What?" →

Why Is The Federal Reserve Not Selling?

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor


On March 15th, the Federal Reserve Chairman, Janet Yellen, announced that the Fed would raise its target rate to 0.75-1.00% from 0.5-0.75%. Yellen also stressed, in a clear, hawkish tone, that the United States economy is doing well. After roughly three months of “hints” embedded in the Fed’s many statements, that news was hardly a surprise.

But in the same speech, Yellen stressed that the Fed was not ready to start selling the $4.5 trillion in the Treasury Notes, Treasury Bonds and mortgage papers that it holds on its balance sheet. Instead, Yellen stressed that the Fed sees rate hikes as the monetary tool. Further, rate hikes, as a tightening measure, must first be exhausted before the Fed would start selling those trillions. That was a clear retreat from the hints the Fed had dropped in the weeks which followed President Trump’s inauguration.

In fact, one could go so far as to say Yellen’s rhetoric, with respect to the Fed’s balance sheet, has been dovish; the way Yellen specifically emphasized how cautious the Fed is about the prospect of trimming its balance sheet singled that option out as some kind of a “bomb” that the Fed doesn't really want to drop and which could send markets into panic mode. If, indeed, the US economy doing so well, why then is the Fed not ready to roll back Quantitative Easing, a stimulus measure generally considered life support for the banking system? Continue reading "Why Is The Federal Reserve Not Selling?" →

What Happens When The Fed Starts Selling?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


The financial markets have been fixated for years at the prospect of interest rate increases by the Federal Reserve but have largely ignored the $4.5 trillion elephant in the room, namely the Fed’s gargantuan balance sheet. But last week several members of the Fed began publicly discussing their support to finally start winding down that massive portfolio.

Way back before the global financial crisis, the Fed’s portfolio held pretty steady in the high $800 billion to low $900 billion range. Then, as the crisis hit full force in the last three months of 2008 after the Lehman Brothers collapse, the portfolio more than doubled, ending that year at slightly north of $2 trillion. While the worst of the crisis may have been reached at that point, that was only the beginning of the balance sheet’s growth.

Between the end of 2008 until the end of 2012, the Fed’s portfolio grew gradually by another $800 billion or so, before spiking again, adding another $2 trillion over the next two years as the Fed embarked on quantitative easing. Eventually the portfolio reached $4.5 trillion, including both Treasury and mortgage-backed securities, at the end of 2014, where it has held largely steady ever since. Continue reading "What Happens When The Fed Starts Selling?" →

Snow Can't Dampen Brighter Employment News

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates


The only thing standing in the way of an interest rate hike this week is the blizzard that’s supposed to hit the Northeast corridor on Tuesday, which might postpone the Federal Reserve meeting (unless they meet by conference call) but it only delays the inevitable.

If the verdict hadn’t been sealed already, it surely was after last Friday’s February jobs report. The Labor Department reported that nonfarm payrolls rose by 235,000, well above the consensus estimate of 200,000 and at the high end of individual forecasts. Labor also upwardly revised January’s figure to 238,000, making it the best back-to-back performance since last July. At the same time, the unemployment rate fell to 4.7% while the labor participation rate rose another tick to 63.0%. Wages grew 2.8% compared to a year earlier.

The report was actually the second strong jobs story of the week. ADP said private sector payrolls jumped by 298,000 last month, beating the consensus forecast by more than 100,000.

While I’m reluctant to give a president who’s been in office less than two months much credit for this showing, I think we have to give President Trump more than a few props for it. Despite the daily barrage of attacks, negative stories and fake news in the so-called mainstream press on Trump, unquestionably he has almost single-handedly changed the investment tone in this country since he was elected. First, it showed up in the stock market; now it’s starting to goose the employment numbers. Continue reading "Snow Can't Dampen Brighter Employment News" →