The Bark is Worse Than the Bite
by James D. MacDonald, Chief Investment Strategist, Northern Trust
Market expectations around a near-term rise in the federal funds rate started to increase in the wake of the release of the minutes from the Federal Reserve's Federal Open Market Committee (FOMC) April meeting. The minutes were viewed as hawkish as they said most FOMC participants judged that if the growth, labor market and inflation data continued to improve then "it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June. "Just last week, Fed Chair Janet Yellen indicated that if the economy and labor markets continue to strengthen, as the Fed anticipates, then such a move would probably be appropriate "in the coming months ." Market reaction so far has been relatively measured, however - and today's disappointing jobs report has taken wind out of the Fed's sails. Over the last two months, the probability of a July hike rose from 33% to as high as 55% - before falling right back down to 30% as markets digested the small number of jobs added to the economy in May. We reiterate our expectation of only one rate hike over the next twelve months.
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The Bark is Worse Than the Bite
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