Over the past two months, markets have built expectations for the Fed to raise interest rates or cut back on bond purchases earlier than the central bank’s forecast, helping to increase long-term bond yields.
But investors are grappling with the risk that the U.S. central bank’s change towards the end of last year in its strategy of achieving employment targets and inflation targets could mean the start of time. Withdrawing the appropriate monetary policy, may actually be as far as the Fed Chairman. Jerome Powell gave a signal.
“Many people continue to come up with what the markets call the Fed’s innocence. But what Powell said [the Fed] Jack Janasiewicz, portfolio manager at Natixis Investment Managers, said in an interview.
The Fed’s commitment to ensuring they increase jobs for black Americans and other minorities disproportionately affected during the COVID-19 pandemic has left traders skeptical of their hawk prognosis. market.
In the framework of a new policy issued in August, Fed to speak it views full employment as broad and inclusive, a recognition of how well a strong labor market supports low-income households.
“In fact, how does the framework affect the Federal Reserve’s policy calculations and ultimately its interest rate fluctuations? Nathan Sheets, chief economist at PGIM Fixed Income, told MarketWatch that this is a very open issue.
Based on trading in eurodollar futures, a quarter point rate hike by the fund is expected by the end of 2022 and three more by the end of 2023.
However, Goldman Sachs economists earlier this week said they did not expect the Fed to raise its policy rate until 2024. They argued that the central bank would keep policy rates lower. in the longer term to spread the benefits of economic recovery into more difficult. The denseness of the US population reflects the experience following the 2008 financial crisis when the unemployment rate among the minorities declined at its slowest rate as the economy recovered.
Indeed, interest rate hike expectations have been slashed even recently after an excellent March job report. The yield on 5-year treasury bonds
one represents expectations for a rate hike over the next few years, having fallen since Monday hitting a 14-month high of 0.98%. Short term term reached 0.87% at the end of the week. Bond prices move inversely with yields.
“The Fed is prioritizing the labor market in such a way that some people who have suffered disproportionately begin to benefit and get the whole job,” says Janasiewicz.
Minutes of the central bank’s March policy meeting showed that the Fed will observe real-world progress in the labor market and price measures rather than responding to changes in economic growth expectations in future.
“Maybe we shouldn’t expect big changes from the Fed over a big period of time. In an interview, Patrick Leary, director of market strategy at Incapital, said the Fed would be content to let the market operate as it is.
“That will give traders an opportunity to understand the Fed’s commitment and to agree on their goals. I’m not going to fight the Fed here, I’m willing to accept the other side of the bet, ”said Leary, who has been optimistic on the five-year notes.
If the Fed’s dovish policy stance sustains longer than the market has set, risky assets such as stocks will still be supported and U.S. Treasury yield increases, analysts said. this year will be limited.
Dow Jones industrial average
up 0.8%, reaching a weekly gain of 2.7%, while the S&P 500 is broad-based
the benchmark hit its 20th record close this year.
Investors in the US stock market earlier this year struggled with the prospect of an easy monetary policy deregulation, seen as the main driver for risky stocks and other risky assets since. the COVID-19 epidemic begins.
Leary warns, however, that he is unsure whether the Fed’s use of monetary policy tools to target social evils such as inequality and rising minority unemployment.
“I didn’t know that we were using the right tools to fix this problem. It’s like using a hammer to chop down a tree. Maybe it doesn’t work, but it’s certain you’ll end up making a dent, ”he said.
Coming next week, investors will see a slew of primary US economic data that will provide insight into household finances. Consumer price index for March starts on Tuesday, retail sales in March and industrial production on Thursday, and housing in March starts on Friday.