Bonds weaker as market eyes consumer inflation data and rate decision

But this meeting will be a bit different.


FED WATCH: Investors are looking ahead to this week’s Fed policy meeting for indications on the timing of the next rate hike and when the Fed might start shrinking its multitrillion-dollar stockpile of bonds. Its timeline for 2.0 percent inflation has also been pushed to 2019.

During the financial crisis in 2007, the Federal Reserve went on a shopping spree with Treasury bonds and mortgage securities. As a result, its portfolio exploded from a little under $1 trillion to roughly $4.5 trillion. Kevin Warsh, a former Fed governor and financier, has publicly criticized the Fed’s “make-it-up-as-you-go-along approach” (paywall).

Until now, when a bond owned by the Fed matures and it receives payment from the issuer of that bond – the US Treasury – the Fed has been reinvesting the proceeds, keeping the overall scale of the asset purchases unchanged. But will it be cautious enough? The real step change may come next year, when changes in committee composition and the potential replacement of Janet Yellen as chair could mean that more hawks are in a position to impose their views. Yet it always winds up disappointed.

The balance sheet grew as the Fed began QE in late 2008, during the worst of the financial crisis and the Great Recession. They’ve since raised rates four times, in increments of 0.25 percentage points.

Fed fund futures have kept the possibility of a hike in December in the cards, with odds now at around 63%, according to’s. Fed officials often expressed surprise and disappointment that inflation is not rising.

We’ll know more tomorrow afternoon, when the Fed concludes its meeting.

“There is a good chance the growth assessment could mention the effects of Harvey but, like the post-Katrina statement, largely dismiss the chance that it poses “a more persistent threat” to growth”, Feroli wrote in a September 15 note to clients.

Unusually soft inflation despite a tight labor market has not caused the Fed to dramatically reassess its current strategy, but the bank did trim its estimates of how high interest rates will rise. Time is represented on the horizontal axis, and interest rates on the vertical axis. In June, officials penciled in one more interest rate increase in 2017. Economic growth jumped to 3 percent in the second quarter, its strongest rate in more than two years. So much for that idea. FedEx climbed $4.12, or 1.9 percent, to $220.12.

Yields on U.S. 10-year Treasuries jumped a hefty 14 basis points last week, but still trailed the United Kingdom where yields on 10-year paper surged 30 basis points. But since there are few signs of that happening, officials could lower their estimate of the jobless rate that indicates full employment. This is expected to reduce the Fed’s balance sheet by around $10bn a month to begin with – but the sums involved are expected to increase to around $50bn a month in a year’s time.

This brings us to that aforementioned portfolio wind-down.

That has sparked investor jitters over the impact of higher borrowing costs on consumers, businesses and financial markets.

The president of the Reserve Bank of Philadelphia, Patrick Harker, said the asset-unwinding measures will move slowly. Unfortunately, inflation has not reached 2 percent since April 2012. It’s now sputtering at 1.4 percent.


First and foremost, the Fed publishes the dot-plot alongside the statement at 18:00 GMT.

It is widely expected from the Federal Reserve’s sixth meet of this year that it may announce paring its.2 trillion balance sheet