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Clarksville, TN – Financial market participants seemed to care little about Putin’s annexation of Crimea, but freaked out following a Yellen comment taken out of context. An upside surprise in the Philadelphia Fed Index help restore positive sentiment in equities.
As was widely expected, the Federal Open Market Committee tapered the monthly pace of asset purchases by another $10 billion (to $55 billion beginning in April).Also as anticipated, the FOMC abandoned the 6.5% unemployment rate threshold in its forward guidance on short-term interest rates.
Fed policymakers will look to a range of economic indicators, the inflation outlook, and financial market conditions in deciding to raise the federal funds target rate, but the FOMC indicated that it will likely be “a considerable period” after the asset purchase program (QE3) ends (4Q14 if the economy continues to evolve as anticipated).
In her press conference, Fed Chair Janet Yellen was asked about the time between the end of QE3 and the first hike in the federal funds rate. She gave a nuanced answer – essentially, “it depends.” However, within her answer, she suggested that a considerable period “probably means something on the order of around six months or that type of thing.”
That would put the first rate hike in April or June of next year. That has long been the consensus view of economists. However, some market participants had thought that the first rate increase might not come until 2016 so they had to adjust their expectations toward the consensus.
Still, nothing is written in stone. The Fed will react to changing economic conditions. For example, as Yellen noted, a continued low trend in inflation would push a rate hike further out.
Next week, a number of economic reports have market-moving potential, but none of the releases will alter the overall outlook for the economy or monetary policy. Note that new home sales and durable goods orders are volatile even when weather isn’t an issue. The data for the following week (March ISM and nonfarm payrolls) will be much more important.
Consumer Money Rates
Treasury Yield Curve – 3/21/2014
S&P Sector Performance (YTD) – 3/21/2014
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Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments.
Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business March 13th, 2013.
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