FOMC (Federal Open Market Committee) members use the very short term Federal Funds Rate (think interest on your checking account) to help throttle the economy. When it is too hot they raise rates. In Paul Volcker’s case to almost 20% way back in the hyper inflation days. When the Economy is struggling they lower rates, as of late to zero, both post Great Financial Recession and the most recent Virus induced mini-recession.
There is an interesting predictor or front runner of the FOMC interest rate movement, sparred by the very short term fixed income traders, specifically the 2 year Treasury bond.
Markets Pre-Empt FOMC Rates
The chart below is of the Two Year Treasury (Red Line) and the afore mentioned FOMC Fed Funds Discount rate (Blue Line) –
The correlation is so strong it is almost hard to even see there are two lines….
Zooming into a shorter time frame of just 5 years, not only can we see the difference, but in looking over to the right, the markets are predicting multiple rate hikes in short order, at this time!
Will see if this holds, but as mentioned in our post earlier this week here, Economic number and the markets are expecting rate hikes!
Have a Great “FOMC Rate Correlation” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
street-cents
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Capital Markets Pre-Empt Interest Rate Hikes … Amazing Correlation of 2 Year Treasury Bond and Fed Funds Rate …
FOMC (Federal Open Market Committee) members use the very short term Federal Funds Rate (think interest on your checking account) to help throttle the economy. When it is too hot they raise rates. In Paul Volcker’s case to almost 20% way back in the hyper inflation days. When the Economy is struggling they lower rates, as of late to zero, both post Great Financial Recession and the most recent Virus induced mini-recession.
There is an interesting predictor or front runner of the FOMC interest rate movement, sparred by the very short term fixed income traders, specifically the 2 year Treasury bond.
Markets Pre-Empt FOMC Rates
The chart below is of the Two Year Treasury (Red Line) and the afore mentioned FOMC Fed Funds Discount rate (Blue Line) –
The correlation is so strong it is almost hard to even see there are two lines….
Zooming into a shorter time frame of just 5 years, not only can we see the difference, but in looking over to the right, the markets are predicting multiple rate hikes in short order, at this time!
Will see if this holds, but as mentioned in our post earlier this week here, Economic number and the markets are expecting rate hikes!
Have a Great “FOMC Rate Correlation” Day!
John A. Kvale CFA, CFP
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