Tag: FED

Why Doesn't The Bond Market Trust The Fed?

Posted on by George Yacik

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


The minutes of the Federal Reserve’s January 31-February 1 meeting released last week said we can expect another interest rate increase “fairly soon,” which many people think means at the March 14-15 meeting, just two weeks away. But the bond market doesn’t seem to be buying it. Why not?

According to the minutes, “many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations or if the risks of overshooting the committee’s maximum-employment and inflation objectives increased.”

At her Congressional testimony a week earlier, Fed Chair Janet Yellen was even more hawkish, warning that “waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession.” That doesn’t sound like someone who’s willing to wait until May, the Fed’s next monetary policy meeting after March (there’s no meeting in April). Continue reading "Why Doesn't The Bond Market Trust The Fed?" →

Did The Markets Overreact - Again - To Yellen's Remarks?

Posted on by George Yacik

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


You may not have noticed it, but before last Wednesday the bond market had been in kind of a mini-rally for the previous month. On Tuesday, the benchmark 10-year Treasury note fell to 2.32%, its lowest level since the end of November. That was down from 2.60% in mid-December, which also happened to be its highest mark since 2014.

But by the end of the week the yield on the 10-year had jumped back up to 2.47%, up 15 basis points in just three days. What happened to put the brakes so suddenly on this rally? Why, Janet Yellen spoke, and when Janet Yellen speaks – well, you know the rest.

But did anyone really listen? Continue reading "Did The Markets Overreact - Again - To Yellen's Remarks?" →

Best 2015 Bond Bet: Long U.S. Treasuries

Posted on by George Yacik

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


Readers of my most recent columns know that I’ve been very critical of the Federal Reserve’s sluggishness – if not actual lack of resolve – to start raising short-term interest rates now that the economy has finally started to show some staying power. The earliest projections, both from Fed officials and market prognosticators, is that the first rate hike won’t come until well after the end of the first quarter of this year, if not sometime in the second half.

But even if the Fed should start taking my advice and start raising rates sooner – it looks like the March 17-18 FOMC meeting would be the earliest – don’t draw the conclusion that I also think long-term interest rates are headed any higher anytime soon.

If anything, I think long-term rates are headed lower in 2015, meaning I think this year will be another good year for bonds, U.S. Treasuries specifically.

That makes me a bit of a contrarian, which is usually where I feel most comfortable anyway. Continue reading "Best 2015 Bond Bet: Long U.S. Treasuries" →

Federal Reserve Policy Failures Are Mounting

Posted on by The INO.com Team

By Lacy H. Hunt, Ph.D., Economist

The Fed's capabilities to engineer changes in economic growth and inflation are asymmetric. It has been historically documented that central bank tools are well suited to fight excess demand and rampant inflation; the Fed showed great resolve in containing the fast price increases in the aftermath of World Wars I and II and the Korean War. In the late 1970s and early 1980s, rampant inflation was again brought under control by a determined and persistent Federal Reserve.

However, when an economy is excessively over-indebted and disinflationary factors force central banks to cut overnight interest rates to as close to zero as possible, central bank policy is powerless to further move inflation or growth metrics. The periods between 1927 and 1939 in the U.S. (and elsewhere), and from 1989 to the present in Japan, are clear examples of the impotence of central bank policy actions during periods of over-indebtedness.

Four considerations suggest the Fed will continue to be unsuccessful in engineering increasing growth and higher inflation with their continuation of the current program of Large Scale Asset Purchases (LSAP): Continue reading "Federal Reserve Policy Failures Are Mounting" →

What's Happening To The Smaller Banks?

Posted on by The INO.com Team

By: Tim Melvin of Benzinga

Consider the life of a banker running a small bank today.

It used to be a great life running one of these little banks. You oversaw a network of 10 or 15 branches in smaller towns or suburbs across the country and were a well-liked business leader of your community.

More than likely you weren't just a member of the Rotary and other civic groups, you were an officer of the group.

Bankers helped people buy homes, grow their businesses, put their kids through college and even save for and fund their retirement. The employees had good jobs and made decent money and really liked the bank and the officers. The stock price was at a nice premium from the original offering price and most folks in town were pretty excited about that. On weekends, the bankers probably played golf and went to local college games with local politicians, developers and car dealers. Continue reading "What's Happening To The Smaller Banks?" →