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By G. Steven Bray
As expected, the Federal Reserve didn’t change short term interest rates last week, but somewhat surprisingly, interest rates fell a little. Maybe markets were more nervous than we thought about the Fed meeting. Fed head Yellen’s comments at the post-meeting news conference didn’t hurt. She seemed to make it clear most Fed members are still reluctant to raise rates. However, Yellen did signal that a hike before the end of the year, probably in Dec, is a real possibility.
The rate drop surprised me because so many so-called market experts are predicting higher rates. Despite those predictions, investors bought bonds, pushing rates down.
So, what does that do for market momentum? For now, it looks like it pretty much sapped it. While rates did drop a little, they simply moved to the lower end of the recent range, and they’re looking comfortable again.
A couple things on the near horizon could disrupt the tranquility. The first is next week’s jobs report. A report that misses expectations either way could give rates a nudge. The second is the resurgence of inflation, especially wage inflation. I think recent economic reports have been equivocal. A report that shows a definite rise could move rates up quickly.