MARKET UPDATE: Why Rates Are Rising Again

Last week’s Federal Reserve announcement changed everything.

ANALYSIS

Last week, the Fed members forecast rates will be higher for longer than previously expected. Whether they are right or not, the markets handled it poorly.

Here’s the Take Home: The ceiling for long term rates has shifted upward in the minds of traders.

That’s a big deal because if traders believe rates will be higher for longer - than they will also believe rates should be higher right now. Potentially much higher.

Why? Because rates are not solely based on current bond prices/rates. Instead, just like stocks, the expectations of where bond prices/rates will be in the future is more important.

These events have had such a large effect that today’s cooler than expected inflation report resulted in little rate improvement. Two weeks ago, we would have seen a large drop.

WHAT’S NEXT

We do not think the Fed meant for their modest bump in future rate expectations to have this outsized result. But it has and there is one silver lining…

Combined with the return of student loan payments, a government shutdown, and an ongoing autoworker strike - the odds of another rate bump this year have gone down to almost zero.