marctomarket.com / by Marc Chandler / Sept 14, 2016
The market has not changed its mind. Following Brainard’s comments yesterday the market had downgraded the chances, which were already modest, of a Fed hike next week. The September Fed funds futures is unchanged on the day. The implied yield of 41 bp matches the 50-day moving average.
Maybe the suggestion that 25 bp hike in the target range somehow would make the Federal Reserve imprudent, incautious or impatient is a bit much. Without expectations changing the US 2-year yield is near 80 bp. It is eight basis points above its 50-day moving average. The 10-year yield is poking through 1.70%, which is about 18 bp above the 50-day moving average.
It is premature to make a hard conclusion. However, investors should be open to the possibility the sell-off in asset prices in the US, and especially the backing up of US interest rates and the steepening of the yields curve may be a protest against such easy monetary policy in the US. That hypothesis seems to be a corollary to the idea that monetary policy in Japan and Europe is maxed out, if not in terms of the lowest rates can go into the phantom-zone below zero and amount of assets that can be bought, then as a function of the political will of policymakers.