Last week marked a major shift in Federal Reserve Board (FRB) language–a shift that could impact the yield curve and extend this bull market!
Week’s News
Last week Wednesday marked the passing of a major milestone. Until that time, the bull market from 1990 to 2000 was the longest bull market in history. Wednesday, this bull market took that title away from the ‘Tech Bubble’ of the Nineties.
The FRB Chair, Jerome Powell, on Friday, spoke at the annual Central Bank meeting in Jackson Hole. While re-enforcing a September hike, he conceded that demand late in the year appears a little more uncertain and may cause a pause in the rate hike process.
What it Means
This was music to our ears! The flattening yield curve, which should flatten more before expanding some, has become an increasing cause for concern. As discussed in past Market Thoughts, an inverted yield curve (where 2-year Treasuries pay more than 10-year Treasuries) is often a precursor to recession.
How They Fix the Curve
When the curve is flat, it does not take much a of shock to the economy for the yield curve to become inverted. By pausing on rate hikes, they give time for international central banks to eliminate accommodative policy and increase their interest rates–doing so will allow our 10-year rate to drift up and steepen the curve. The other way is for the FRB to start unloading more of the balance sheet–doing so will increase supply on the longer end of the curve, and as a result increase the 10-year rate.
Your interest in our articles helps us reach more people. To show your appreciation for this post, please “like” the article on one of the links below:
Facebook | Twitter | LinkedIn | Google+
FOR MORE INFORMATION:
If you would like to receive this weekly article and other timely information follow us, here.
Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment.
Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.