Friends
Economic data be damned. The Fed, not unexpectedly, raised the Fed Funds rate another quarter point today (3rd raise in 6 months) and indicated that over the next couple of years they plan on reducing their balance sheet. Despite the fact that the inflation rate is below their target, Chair Yellen indicated that one-off events are the culprit and that inflation pressures will normalize over time. The Fed seems to be satisfied with the employment picture which is a major factor in the rate hike. So despite lackluster economic data, including today’s retail sales number, and waning inflation numbers the Fed is embarking on a tightening process which includes rate hikes and the shrinking of the balance sheet. Looks like our Federal Reserve is a bit more gutsy than we might have thought.
Stocks, didn’t really know how to react as shares prices rose a little then fell a little then drifted into the close. By the close, the Dow Jones Industrial Average was up 46 points to finish the day at 21,374. The S&P 500 was down 2 points to close at 2,437. Gold was down $8 to trade at $1,260 per ounce, while oil was down $1.68 to trade at $44.78 per barrel.
So once again, the Fed seems to be seeing something that the bond market doesn’t see. As the Fed is raising rates on the short end of the curve, the bond market is driving down rates on the long end of the curve. The 10 year Treasury Note is now yielding only 2.14% after touching 2.60% early in the year. Talk about a flattening yield curve. Will that continue? We shall see.
Have a nice evening everyone.
