The next 25bps rate rise in the US cannot be far away. There does appear to be some disagreement as to when the first will come and how many there will be this year. Pricing in markets indicate there will be only two rises this year even as various Fed officials, including the Fed chair Janet Yellen, repeatedly point to three rises as long as the data does not change.
According to the Federal Open Market Committee (FOMC) minutes of February’s meeting “many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming information on the labor (sic) market and inflation was in line with or stronger than their current expectations…” This section of the minutes got the most attention and analysis from economists and other observers but there was little reaction in US markets.
Westpac noted what seemed to be little reaction from markets even in the face of a chance the Fed would move at it March meeting. “[T]he Fed is primed to move and that March is a live meeting…and though there was some short term volatility into the release, markets were little changed…”.
CBA’s view on the reaction of US bond markets said it all, “The lack of a clear endorsement of March and the seeming queasiness at contemplating three successive hikes helped USTs (US Treasury bonds) to rally.”. When bond prices rise (rally), bond yields fall.