The Fed’s high hurdle. Today, the Federal Reserve (Fed) kicks off its second two-day meeting of 2019, and market participants are overwhelmingly expecting the Fed to hold rates steady with a continued commitment to flexibility. Still, Fed Chair Jerome Powell will be tasked with a difficult balancing act as he addresses slowing, but sound U.S. data and tenuous global affairs. We’ll outline our expectations for Wednesday’s Fed announcements and commentary on the LPL Research blog later today.
Market sees rate cut as more likely than hike by year end. Fed fund futures imply that bond market investors see a rate cut as more likely than a rate hike by the end of 2019, a scenario that has essentially flipped from just four months ago. We see the lowered rate expectations as the product of near-term global headwinds. As these headwinds subside, U.S. growth could stabilize and inflation could pick up modestly. If this happens,the Fed may hike once in the second half of the year after carefully communicating a change in stance to markets.
Rates are still stuck. Rates have fallen asleep this year, and it’s becoming difficult to see what could wake them up. The 10-year Treasury yield is still hovering in a 23-basis point (0.23%) closing range year to date, its smallest since 1965. We see the stall in long-term rates as a clash between steady economic growth and rising inflation expectations, and higher global demand amid lower yields in other major regions. However, we think sound economic fundamentals will eventually prevail over global uncertainty.
NEW Market Signals podcast. In this week’s podcast, Chief Investment Strategist John Lynch and Senior Market Strategist Ryan Detrick focus on recent low job growth numbers, the Fed’s stance on interest rates, and the performance of large cap stocks. Subscribe to the free podcast series on iTunes, Google Play, Spotify, or wherever you get your podcasts!
- Durable Goods Orders (MoM Jan)
- Federal Reserve Rate Decision (Mar)
- Germany PPI Report (Feb)
- Japan Leading Index (Jan)
- Japan Coincident Index (Jan)
- Philadelphia Fed Business Outlook (Mar)
- Initial Jobless Claims (Mar 16)
- Leading Index (MoM Feb)
- Eurozone Consumer Confidence (Mar)
- Japan CPI Report (Feb)
- Nikkei Japan Manufacturing PMI (Preliminary, Mar)
- Markit US Manufacturing PMI (Preliminary Mar)
- Markit US Services PMI (Preliminary Mar)
- Markit US Composite PMI (Preliminary Mar)
- Exisiting Home Sales (MoM Feb)
- Markit/BME Germany Manufacturing PMI (Preliminary Mar)
- Markit Eurozone Manufacturing PMI (Preliminary Mar)
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