Here in mid-February, it’s been almost one month since Inauguration Day. As happens every four years, albeit with some additional spice around the debate this time, campaign promises are running headlong into a combination of Washington, D.C. politics and mathematical reality. So, what will be accomplished and what will end up on the cutting room floor? To provide some food for thought, here are a few notes on what we’re seeing today.
For most of pre-election 2016, and a good bit of 2015, the markets appeared to focus on statements by the U.S. Federal Reserve, parsing their sentences and speculating about what it all meant. In 2017, there’s been a lot of activity emanating out of our national capital so far and that’s been added into the mix. But now and again, we return to our old friends.
Today’s news for example is dominated by the elimination of one word in Chairman Yellen’s statement to Congress. In January, she used the term “modestly accommodative” in her speech to the Stanford Institute for Economic Policy Research. Yet, in the Fed's February press release, she just used “accommodative” when discussing their stance on monetary policy. A variety of commentators feel this means there’s a higher probability that the Fed Funds Target Rate will rise in March (still way under 50%), and a higher chance in May.
In the markets, the 10-year US Treasury Note is yielding about 2.50% (as of 2/15/2017). That’s quite a bit higher than the 1.80% level from this time last year, back on par with rates from 18-months ago, and around 0.20% less than what we saw in February 2015. So is the market less optimistic than two-years ago?
Back then, I thought the yields suggested there would be nominal growth over the next 10 years, with very little inflation. I would continue to suggest the same conclusion as indicated by the invisible hand.