Brett Wander, Chief Investment Officer of Fixed Income at Charles Schwab Investment Management, today examines the rising odds of a March interest rate hike, which seemed almost impossible just a month or two ago.
A lot’s changed lately
Just a few weeks ago, a rate hike at the Fed’s March 15 meeting seemed unlikely. The Dow was “languishing” below 20,000. And every day and in every way, Trump dominated the headlines—his latest tweets and his comments on immigration, trade wars, and walls. The forecasted probability of a rate hike in March was about 25% heading into February, but that’s risen to roughly 35%.
Recent data has been pretty good
A few weeks ago, the economic data looked rather mixed. But things have improved. The latest employment report came in stronger than expected, with 227,000 new jobs created in January. Also, recent producer and consumer price readings were stronger than expected as well. If this trend of improving economic data continues over the coming weeks, a March rate hike will become increasingly likely.
Neither the market nor Yellen like uncertainty
Yellen has been dovish on rates for what feels like forever, and like the market, she prefers transparency to uncertainty. Janet’s quite aware of the impact that the Fed can have on the market. And she wants to make sure that the market knows what to expect policy-wise. With about a month before the Fed’s next meeting, things are still up in the air. However, as we approach that fateful day in March, Yellen will no doubt be under significant pressure to signal the Fed’s intentions—one way or another—ahead of time.
The iShares Barclays 20+ Yr Treas.Bond ETF (NASDAQ:TLT) was trading at $120.37 per share on Tuesday afternoon, up $0.05 (+0.04%). Year-to-date, TLT has gained 1.04%, versus a 5.62% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Charles Schwab Investment Management.