26 Jun Fixed Income Perspectives – “See You in September”
Voya Investment Management – Fixed Income Perspectives – June 2015
As Tom Petty said, “The waiting is the hardest part”. Another policy meeting has passed with no action from the Federal Reserve Open Market Committee, which continues to stress that its decision to hike the federal funds rate will be “data dependent”. We think the Fed wants to hike rates this year, and September certainly is still in play.
However, if the central bank does take action at the end of the summer it’s not likely to be driven by runaway inflation or evidence that the slack in the economy has been unambiguously eliminated. Instead, a Fed move in September would likely be prompted by the central bank’s concern about financial market stability. So that gives us about three months to party like it’s 1999 – which was the last and only time in which the Fed raised short-term interest rates while core POCE (its favourite measure of inflation) was near the current level of 1.25%.