We have discussed for some time now that the Fed would like to raise interest rates at least one time this year to get the Fed Funds rate off of zero percent, which they perceive as more of an emergency monetary policy stance. Unfortunately for Chair Yellen and Co. they have also stressed that they are, indeed, data dependent and will only change policy when the data supports the change. Well today’s miserable GDP print of almost zero growth for the first quarter of 2015 didn’t do much to support a more hawkish monetary policy. Today’s FOMC statement basically took the calendar out of play and laid the responsibility for the timing of the rate hike strictly on the back of economic data. That being said, those betting on a rate hike in June seem to be out of luck. Oh sure, we could have a couple of dynamite job reports and inflation could spark overnight, but all that seems very unlikely at this point.
As for the markets, for the day the Dow Jones Industrial Average was down 74 points to close at 18,035. The S&P 500 was down 7 points to finish the day at 2106. Gold was down $10 to trade at $1203 per ounce, and oil (aided by a weak dollar) was up $1.45 to trade at $58.51 per barrel WTI.
The odd thing today was that as dovish as the Fed Statement seemed to be, the bond market didn’t seem to be buying it. Rates on the 10 year Treasury note rose above 2%, seemingly indicating that the bond market isn’t buying the dovish talk at the moment and traders are beginning to price in a rate increase. This could just be temporary, but was worth noting. In the meantime, the economy sputtered in the first quarter, and now market participants have to decide whether it was just a temporary blip, affected by weather, or is the economy truly beginning to roll over? Let’s see how the markets play out the rest of the week.
Have a nice evening everyone.