Tag Archives: Fed funds

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

Founder of J.K. Financial, Inc.

A Dallas Texas based fee only

Financial Planning Total Wealth

Management firm.



Rate Increase in the Cards today!

Shhh…. at the penning of this post the gang is still sleeping (promised full attention this week) …. Couldn’t keep away from this mid-spring break update…

Rate Increase Today

Janet Yellen and the FOMC (Federal Open Market Committee) have signaled two rate increases this year. The capital markets have fully priced in an increase today.  Their increase will move “Short term” rates to .75 % or 75 basis points.

This will help short term bonds, checking accounts and the like.

Recall our friends at JPMorgan think rates have been too low for too long…. if they are correct, this increase may help accelerate the economy.

We agree!

Only time will tell if this is correct.

One thing is for certain, the capital markets are much more receptive to these increases than they have been in recent past.

Due to speed and security concerns, this will be my last post until next week …. shhh… the family will never know !

Have a great day!

John A. Kvale CFA, CFP