The bond market is doing the “happy dance” in response to last week’s FOMC meeting. But what
did the Fed say that we did not already know that would cause such a reaction? They are keeping
overnight rates unchanged for the moment and are suggesting that rates will rise more gradually
this year than earlier envisioned. The officials now foresee two, rather than four 25 bps hikes
during the remaining months of 2016. The bottom line is that no one expected a rate hike in
March, and yet bonds improved, stocks are back to plus for the year, oil closed the week at $39.43,
the dollar was soft, and all is well. However, wait a minute! The Fed is once again sending mixed
signals about its intent but perhaps they are conveniently following the market’s lead which is a
rate hike in June or September and again in December. Chair Yellen in her comments after the
FOMC meeting stated that they believe the U.S. will see further strengthening in the job market
followed by modest gains in inflation during the year. The really good news is that the Fed is
finally tuned into foreign events as they expect the global slowdown to persist for quite sometime.
All this leads me to believe that the markets will settle down over the next few weeks but the
“jittery” mood that currently overwhelms the trading community might take longer to dissipate. In
the meantime, best to stay out of the way!