{"id":193122,"date":"2023-07-07T10:15:00","date_gmt":"2023-07-07T14:15:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=193122"},"modified":"2023-07-07T10:19:11","modified_gmt":"2023-07-07T14:19:11","slug":"skipping-the-pause","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/fixed-income\/skipping-the-pause\/","title":{"rendered":"Skipping the Pause"},"content":{"rendered":"\n

At last month\u2019s FOMC<\/a> meeting, the Fed<\/a> hit the pause button for the first time since it began raising rates in March of last year<\/a>. As a result, speculation began to intensify about what the policy maker\u2019s next move could be or whether it would take a breather for a while and see what 500 basis points (bps)<\/a> worth of rate hikes<\/a> has done to the economic and inflationary<\/a> setting. Well, after hearing from Chairman Powell in the weeks following the June Fed gathering, one could be forgiven for thinking the FOMC may just be \u201cskipping the pause\u201d part and getting right back to rate hikes.<\/p>\n\n\n\n

The question I keep coming back to is whether Powell & Co. are seriously considering raising the Fed Funds Rate<\/a> as soon as this month\u2019s policy meeting or was the Chairman just trying to send a message to the markets\u2014the Treasury arena in particular\u2014that yields needed to be adjusted for a higher for longer scenario and not rate cuts. If you think about it, if it was the \u201cmessaging\u201d option, why not just emphasize that rate cuts are off the table and not even being considered? Well, Powell essentially did say that and took it to the next level by saying two more rate hikes \u201cmay be appropriate.\u201d<\/p>\n\n\n\n

Now let\u2019s turn our attention to last week\u2019s developments. The Fed Chair has been consistently mentioning how the majority of policy makers see two more rate hikes this year, as evidenced by the shift in the \u201cdot plot\u201d<\/a> at the June FOMC meeting. In other words, the Fed\u2019s median estimate for Fed Funds has been increased by 50 bps to 5.60% as compared to the prior projection in March. However, Powell went even further at last week\u2019s European Central Bank forum in Sintra, Portugal, when he said he wouldn\u2019t take consecutive rate increases off the table, presumably at the July and September Fed convocations.<\/p>\n\n\n\n

So, let\u2019s summarize: the Fed went from pausing its rate hikes in June to now potentially raising rates at each of the next two scheduled FOMC meetings. I\u2019m sorry, but I can\u2019t help but wonder why did the Fed even pause then? I mean, if you\u2019re apparently leaning in the direction of raising rates one or two more times, why not just rip the band-aid off and do it in June and go from there? From an economic\/inflation data perspective, did the policy maker really think that much was going to change between meetings?<\/p>\n\n\n\n

Conclusion<\/strong><\/h2>\n\n\n\n

Needless to say, these developments only highlight our thoughts that volatility<\/a> is going to remain elevated in the money and bond markets. In addition, it also underscores our point of preferring to be late rather than early to the duration party. Stay tuned\u2026it looks like \u201cFed-watching\u201d is going to be an intriguing endeavor for the second summer in a row.<\/p>\n\n\n\n

—<\/p>\n\n\n\n

Originally Posted July 5, 2023 – Skipping the Pause<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Following the June FOMC meeting, where the Fed hit \u201cpause,\u201d speculation began to intensify about what the policy maker\u2019s next move could be. Kevin Flanagan delves into the recent Fed developments and if the Fed is really going to be pausing rate hikes for the summer.<\/p>\n","protected":false},"author":54,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[15,6,8,9,26,3],"tags":[77,592,314],"contributors-categories":[13638],"class_list":{"0":"post-193122","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-fixed-income","7":"category-north-america","8":"category-region","9":"category-securities","10":"category-text-articles","11":"category-traders-insight","12":"tag-fed","13":"tag-fixed-income","14":"tag-fomc","15":"contributors-categories-wisdomtree-u-s"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"\nSkipping the Pause | Traders' Insight<\/title>\n<meta name=\"description\" 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