The Fed hiked policy rates today:
Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 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 2 to 2-1/4 percent.
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; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Richard H. Clarida; Esther L. George; Loretta J. Mester; and Randal K. Quarles.
No dissenters!
Well … maybe one guy:
The Fed stressed repeatedly that the U.S. economy is “strong” across the board and no longer needs the heavy stimulus the central bank put into place during the Great Recession, but the president is concerned that higher rates will harm the economy.
“I am not happy about [the rate hike]. I’d rather pay down debt,” Trump said Wednesday at a news conference after his U.N. meetings. “I’m worried about the fact that they seem to like rising interest rates. We can do other things with the money.”
…
Trump has urged Powell, his own appointee, not to raise rates further, but the central bank is an independent agency that shows no sign of bowing to presidential pressure. Twelve of the Fed’s 16 leaders now anticipate another rate hike by the end of the year.
…
It’s an ongoing question how high the Fed will take interest rates. Fed leaders released new projections Wednesday showing the neutral level for interest rates is 3 percent, a level they are likely to hit within the next year. If they go beyond that, business leaders are likely to read that as a sign the Fed is concerned that the economy is overheating, inflation is picking up too much and the central bank wants to rein that in.The Fed doesn’t foresee interest rates going much above 3.25 to 3.5 percent in the coming years, although central bankers stress they will adjust policy depending upon what happens with the economy.
Trump’s doing his usual thing … setting up an excuse for future failure. If the economy tanks – or even if it simply doesn’t meet his promised 3% p.a. growth every single year … he’s got to blame somebody. And if he blames the Fed, there are a lot of gold-standard wingnuts and international-cabal conspiracy theorists who will cheer him on.
I love the bit where he says he’d “rather pay down debt”. Coming from the guy who’s pumping fiscal stimulus into the economy as fast as he can … well, what can one do but sigh?
PerpetualDiscounts now yield 5.59%, equivalent to 7.27% at the standard equivalency factor of 1.3x. Long corporates now yield about 4.10%, so the pre-tax interest-equivalent spread is now about 315bp, unchanged from September 19.
The Fed’s action today appeared to boost hopes of great big fat dividend increases on reset as time passes …
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1206 % | 3,133.0 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1206 % | 5,748.9 |
| Floater | 3.47 % | 3.64 % | 36,842 | 18.21 | 4 | 0.1206 % | 3,313.1 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1427 % | 3,233.0 |
| SplitShare | 4.60 % | 4.57 % | 55,596 | 4.78 | 5 | 0.1427 % | 3,860.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1427 % | 3,012.4 |
| Perpetual-Premium | 5.56 % | -3.74 % | 51,739 | 0.10 | 12 | 0.0823 % | 2,921.7 |
| Perpetual-Discount | 5.44 % | 5.59 % | 59,205 | 14.47 | 22 | 0.0296 % | 2,993.4 |
| FixedReset Disc | 4.17 % | 5.03 % | 149,224 | 15.52 | 42 | 0.3036 % | 2,583.9 |
| Deemed-Retractible | 5.18 % | 6.00 % | 58,974 | 5.35 | 27 | 0.0173 % | 2,987.1 |
| FloatingReset | 3.41 % | 4.19 % | 40,520 | 5.62 | 5 | 0.2364 % | 2,843.8 |
| FixedReset Prem | 4.83 % | 4.13 % | 167,708 | 3.05 | 35 | 0.0903 % | 2,571.1 |
| FixedReset Bank Non | 3.19 % | 3.76 % | 65,862 | 0.41 | 9 | 0.0677 % | 2,574.0 |
| FixedReset Ins Non | 4.32 % | 5.11 % | 88,876 | 5.42 | 22 | 0.4610 % | 2,591.1 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.C | Floater | -1.52 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-09-26 Maturity Price : 17.49 Evaluated at bid price : 17.49 Bid-YTW : 3.70 % |
| PWF.PR.F | Perpetual-Discount | -1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-09-26 Maturity Price : 23.36 Evaluated at bid price : 23.65 Bid-YTW : 5.63 % |
| EMA.PR.H | FixedReset Prem | 1.08 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2023-08-15 Maturity Price : 25.00 Evaluated at bid price : 25.37 Bid-YTW : 4.72 % |
| BAM.PR.K | Floater | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-09-26 Maturity Price : 17.80 Evaluated at bid price : 17.80 Bid-YTW : 3.64 % |
| MFC.PR.I | FixedReset Ins Non | 1.14 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-09-19 Maturity Price : 25.00 Evaluated at bid price : 24.94 Bid-YTW : 4.47 % |
| CM.PR.O | FixedReset Disc | 1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-09-26 Maturity Price : 23.05 Evaluated at bid price : 23.66 Bid-YTW : 4.90 % |
| PWF.PR.T | FixedReset Disc | 1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-09-26 Maturity Price : 23.50 Evaluated at bid price : 24.35 Bid-YTW : 4.84 % |
| BAM.PR.B | Floater | 1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-09-26 Maturity Price : 17.75 Evaluated at bid price : 17.75 Bid-YTW : 3.65 % |
| SLF.PR.H | FixedReset Ins Non | 1.69 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.70 Bid-YTW : 6.25 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.L | FixedReset Bank Non | 300,180 | YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 25.18 Bid-YTW : 3.43 % |
| BMO.PR.E | FixedReset Disc | 229,993 | YTW SCENARIO Maturity Type : Call Maturity Date : 2023-11-25 Maturity Price : 25.00 Evaluated at bid price : 25.07 Bid-YTW : 4.85 % |
| BNS.PR.H | FixedReset Prem | 211,200 | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-01-26 Maturity Price : 25.00 Evaluated at bid price : 26.10 Bid-YTW : 3.71 % |
| BNS.PR.G | FixedReset Prem | 178,350 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-07-25 Maturity Price : 25.00 Evaluated at bid price : 26.45 Bid-YTW : 3.69 % |
| BNS.PR.Z | FixedReset Bank Non | 127,001 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.80 Bid-YTW : 4.19 % |
| TD.PF.K | FixedReset Disc | 94,660 | YTW SCENARIO Maturity Type : Call Maturity Date : 2023-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.08 Bid-YTW : 4.78 % |
| There were 33 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| PWF.PR.A | Floater | Quote: 21.65 – 22.48 Spot Rate : 0.8300 Average : 0.5771 YTW SCENARIO |
| TD.PF.D | FixedReset Disc | Quote: 24.60 – 25.00 Spot Rate : 0.4000 Average : 0.2329 YTW SCENARIO |
| IFC.PR.F | Deemed-Retractible | Quote: 24.51 – 24.98 Spot Rate : 0.4700 Average : 0.3056 YTW SCENARIO |
| MFC.PR.H | FixedReset Ins Non | Quote: 25.35 – 25.72 Spot Rate : 0.3700 Average : 0.2306 YTW SCENARIO |
| HSE.PR.C | FixedReset Prem | Quote: 24.58 – 25.00 Spot Rate : 0.4200 Average : 0.3070 YTW SCENARIO |
| TD.PF.C | FixedReset Disc | Quote: 23.21 – 23.50 Spot Rate : 0.2900 Average : 0.1783 YTW SCENARIO |