As mentioned Friday in our preview post, Jerome Powell chair of the FOMC and the rest of the voting members released their updated public press Economic Review and analysis mid-week last week. This release also included 30 minutes post Q and A along with a prepared discussion by Powell that lasted about 15 minutes.
Just by chance finding myself on the road for a slightly unusual 90 minute journey that occurred exactly during the time Jerome Powell was speaking, I was able to listen to the entire speech live, while I’m not sure if it was the subject matter, or a minor dental procedure the day before, no matter … I found it extremely difficult to stay awake while driving – digressing here, but if you weren’t on the edge of your seat listening to the speech and reading the press release … you’re likely in good company as we usually find this material extremely interesting – still digressing.
Jerome Powell is most open to reveal something either by accident or on purpose during the Q&A as the prepared press release and the prepared remarks have so many eyes and advisers reviewing he’s certainly to say only what we are supposed to hear.
Wall Street and much of the media outlets took much of his comments to be more Hawkish (less friendly and more likely to raise rates sooner.) For the record, this is why we enjoy listening to these types of events ourselves, as we did not find anything more than doing what he and the rest of the FOMC had promised to do, all along.
The dot plot which as a quick reminder, is an estimate of all board members including non-voting members timing and amount of where interest rates and where they expect economy to be was also released.
The following… Shows that multiple board members are more eager to raise rates sooner than they had been in recent quarters. In our minds this is good news as we would rather the FOMC not stay too low to long encouraging reckless behavior in the form of leverage and over leverage. Also encouraging for more conservative and cash investment such as our checking accounts an increase in rate will give us collectively some income on those reserves.
The Dot Plot Thickens
6-16-21 Dot Plot
Two Members Now Expecting two increases in 2022 with five members also expecting one move for a total of seven members expecting moves in 2022!
3-17-2021
Expectation by three Members of One interest rate increase and one member expecting two moves in 2022
Again, we think higher rates sooner is a return to normal and sets us back on course for continued economic recovery… just keeping to their word!
With continued compliments for keeping my material short and to the point, a late viewing of the US Open Golf Tournament, thanks to a West Coast Venue and a desire to see what the so called Smartest Guys in the Room – Bond Guys do this week, this post is officially Part 1 … Will only be one more Part, Promise!
Have a Great “Dot Plot Analysis” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
$treet-¢ents 
The Smartest Guys in the Room, The Bond Markets and Participants – Part 2 of FOMC Dot Plot Update
Part 2 of our overzealous post started Monday that was a bit too long- Enjoy!
There’s an old saying that the smartest guys in the room are the Bond Market or Bond Market Participants.
Bond market participants have way less to think about than their brotherin equity market participants, Basically bond participants only think of the economy, the credit worthiness and length of their investment.
Using the USA as your proxy and with the United States being the most credit worthy bond in the world, there is one less thing bond market participants have to worry about. Taking a peek at the 10-year US treasury yield which would reflect mostly economic expectation or possibly the future growth, of course there could be outside investors rushing to the US treasury market in search of higher yields boring the matter a bit, but all other things set aside under the surface post speech bond market investors are expecting greater controlled economic growth, sooner (2 year Movement.)
Dramatic Movement in the 2 Year Treasury
In order to get a most up to date chart, we needed to use futures contracts, so bear with us, as the chart goes down the yield is rising… bond guys are pricing higher rates now!
Here is a close up of the latest few days, again on the 2 Year
Not surprisingly a bit of a come back (higher prices lower yield) in the chart after such a large move.
30 Year Movement
Same use of futures contract here…
Higher chart price is lower yield? The initial drop is in the February March 2021 time frame as the Economy began to open, but take note of the move UP – lower yields in the last few weeks!
This may seem counter intuitive, but the eventual increase in rates would thwart inflation and is being expressed by lower long term rates…
We’ve talked at length on inflation versus deflation, so will leave it alone at this time but it might be noted that’s the smartest guys in the room thank future economic growth is at least higher and longer term inflation is not their concern, at least for now!
Have a Great “FOMC – Smartest Guys In the Room Review” 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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Posted in Economy, FOMC, Interest Rates, Investing/Financial Planning, Market Comments, Political, Retirement Planning
Tagged 10 Year, 2 Year, FOMC, Interest Rates, Jerome Powell