Aug 302016
 

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By G. Steven Bray

The Fed spoke last Fri, and it seems like no one cared. Fed Head Yellen said the case for raising short term interest rates is stronger. That was followed by two other Fed officials who said the case was compelling, and markets should be prepared for a Sep rate hike. The market reaction was quick and negative, and interest rates moved higher. That was predictable. However, yesterday, rates slipped back into that familiar range of the last couple months. That leaves me scratching my head.

It’s possible markets already have priced in a Sep rate hike. The Fed has been hinting at it for a while, and US economic data, especially consumer data, has been positive the last couple months. It’s possible, but I doubt it.

It’s possible markets believed Yellen and friends didn’t break any new ground, and they’re waiting for this week’s jobs report to give them direction. Fed officials said a rate hike depends on continued positive economic data. But I suggest it would take a pretty disappointing jobs report to sway the Fed. Several Fed officials let slip that 150k jobs would be plenty. The market consensus is last month produced 180k jobs.

Finally, it’s possible that month-end forces are keeping a lid on rates for the moment. If that’s true, rates could rise heading into the end of the week.

Regardless, I would suggest a defensive posture at this point. Rates still are close to their all-time lows. If you choose to float your rate, choose a bail-out point when you’ll lock. When rates start moving up, they may not head down again for a while.

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