Miércoles, 20 Junio, 2018

Treasury yields rise as investors look ahead to June rate hike

US consumer spending unchanged in March; inflation subsides US consumer spending flat for second month in March
Manuel Armenta | 04 May, 2017, 17:45

US government debt prices were lower on Thursday after the Federal Reserve left its interest rate unchanged.

The U.S. economy grew at a sluggish 0.7 percent in the first quarter - the lowest rate in the last three years.

But the U.S. central bank said it expected growth to pick up again, and chose to keep a key interest rate on hold in a range of 0.75% to 1%.

Federal Reserve officials were unusually explicit in their statement, released yesterday following a two-day meeting in Washington, indicating that a disappointing first quarter wouldn't knock the committee off its path to raise rates two more times this year after a hike in March.

Meanwhile, 12-month inflation has held close to the Fed's two percent target, even while some price measures declined in March.

"The labor market continued to strengthen even as growth in economic activity slowed and "The fundamentals underpinning the continued growth of consumption remained solid", the Fed's statement added". Unlike the May meeting, the June FOMC will be followed by updated quarterly economic projections and a press conference with Fed Chair Janet Yellen.

This is really important because the Fed views both core inflation and inflation expectations, especially market-based ones, as particularly good predictors of future inflation. Most Fed officials had anticipated that the central bank was likely to reduce its 4.5 trillion dollars of balance sheet later this year, if the economy continued to perform as expected, according to minutes of the Fed's last policy meeting in March.

The Fed said near-term risks to the economy appear "roughly balanced", with inflation closing in on its 2 percent goal and the jobless rate near a level officials see as consistent with their maximum-employment mandate.

Municipal bonds ended stronger on Wednesday, traders said, as new issuance swept into the market and federal policy makers took no action on interest rates. While business investment and housing were bright spots, household spending - which accounts for almost 70 percent of all US economic activity - rose by a meager 0.3-percent annualized rate. But they had been hoping for some indication of a rate hike at the Fed's next meeting in June. It was largely expected to increase the funds rate two more times over the course of 2017, though after Wednesday's announcement, the likelihood of that remains to be seen.

Markets reacted accordingly, with futures traders bidding up the chances of a June interest rate increase to nearly fully price it into the market.

"Today's FOMC decision is only a short-term, temporary pause". The administration has moved quickly to slash regulations on business, but efforts like tax cuts and infrastructure spending have proved more hard. The Australian dollar declined against United States dollar on Wednesday as Australian dollar was dragged down after dollar strengthened across the board after the Fed statement.