Tag: The Federal Reserve

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" →

Time For The Fed To Take It Easy

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor


The Fed’s June rate decision is coming up this week and the consensus bets are overwhelmingly tilting towards a rate hike. According to the CBOE Fed Funds rate probability chart, the probability the Fed will raise rates at the next meeting is 91.3%. Thus, suggesting that market participants are almost certain a rate hike is coming. Furthermore, there is also growing consensus that the Fed will also start trimming its balance sheet as early September. However, a deep dive into the mechanics of the US economy suggests that the Fed should ignore the consensus, and even its own outlook, and take a step back from tightening. And it all starts with the puzzling discrepancy between inflation and housing prices.

Home Prices Heat as Inflation Cools

Upon the surface, the latest fall in the US Core inflation rate, from 2.3%, four months ago to 1.9%, and the latest surge in US housing prices (as reflected by the Case-Shiller Index) present a somewhat puzzling divergence between the US inflation outlook and housing prices. Nonetheless, those two contradicting developments are closely intertwined, both to each other and to the Fed’s monetary policy. And, to illustrate the link between the two, we must dive into the US Treasury market. Continue reading "Time For The Fed To Take It Easy" →

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?" →

So You Still Think The Fed Doesn't Need Oversight?

Posted on by George Yacik

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


After this latest episode involving the disgraced Federal Reserve Bank of Richmond President Jeffrey Lacker, who resigned for being less than truthful in the Fed’s probe of a leak to an analyst five years ago, are there still some people – outside the Fed, that is – who still believe the central bank is above the law and shouldn’t have to answer to Congress?

If you haven’t heard by now, Lacker – who was slated to resign later this year anyway – suddenly stepped down as the head of the Richmond Fed after he admitted to speaking to an analyst at Medley Global Advisors in 2012 the day before it published a report that contained confidential information about Fed policy discussions. You might remember that the leak, when it first came to light several years ago, “sparked a criminal investigation, prompted outrage on Capitol Hill and deeply embarrassed the Fed,” as the Wall Street Journal reported. Continue reading "So You Still Think The Fed Doesn't Need Oversight?" →

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?" →