Treasury Yields Drop, Fed Signals No Raise Until Fall

Today’s Fed Announcement and Fed Chair Press Conference signaled the markets that the anticipated summer rate hike is off the table: No hike today and none is expected for July. The futures markets now indicate a 7% probability of a July hike and 29% chance in September – down from 21% and 35% respectively. The Fed also dialed back the eventual “stabilized” Fed Funds interest rate, down from 3.25% to 3.00%. Even achieving that lower rate may take longer than previously thought; well into 2018 or beyond. Global concerns such as Brexit worries (which is looking more likely and presents a threat to market stability) have caused government bond yields to plunge. The benchmark German Bund is in negative territory; the 10 year UST is at 1.59%. (Note that the all-time low was 1.37% in 2012). Markets are awaiting tomorrow’s announcement from Bank of Japan who may further expand their record stimulus program. This combined with the recent weak jobs report makes The Fed’s announced estimate of 2 separate rate increases extremely unlikely this year. Look for only a single rate increase in 2016. stay tuned

David R. Pascale, Jr.