PrefBlog

The FOMC hiked the US policy rate:

Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams.

This had a minor effect on markets, unless it didn’t (there are always cross-currents!):

Benchmark 10-year U.S. Treasury notes last fell 9/32 in price to yield 2.9903 per cent, from 2.957 per cent late on Tuesday.

The 30-year bond last fell 11/32 in price to yield 3.1096 per cent, from 3.092 per cent Tuesday.

The dollar index, which measures the greenback against a basket of currencies, rose 0.09 per cent, with the euro up 0.06 per cent to $1.175.
…
The Dow Jones Industrial Average fell 117.74 points, or 0.46 per cent, to 25,202.99, the S&P 500 lost 11.19 points, or 0.40 per cent, to 2,775.66 and the Nasdaq Composite dropped 8.10 points, or 0.11 per cent, to 7,695.70

PerpetualDiscounts now yield 5.57%, equivalent to 7.24% interest at the standard conversion factor of 1.3x. Long corporates now yield about 3.95%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread” is now about 330bp, a slight (and perhaps spurious) widening from the 325bp reported June 6.

This entry was posted on Wednesday, June 13th, 2018 at 8:30 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.