Turning A Deaf Ear To The Fed

Does the Fed still matter to bond traders?

 
 

Does the Fed still matter? You might say "yes" but bond traders don’t think so. 

Yesterday, John Williams, president of the San Francisco Federal Reserve Bank, and Eric Rosengren, president of the Boston Federal Reserve Bank, both said they believe the Fed will need to move three more times this year instead of two. 

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This should have mattered to bond traders because Williams is thought to be a close ally of Fed chair Janet Yellen and is in sync with her most of the time. Rosengren’s shift is significant because less than a year ago he was considered a “dove” on policy. Moreover, Rosengren said he worries that keeping rates too low too long would create bubbles in various assets.

Normally statements by these two Fed officials would have registered some alarm for bond traders, but this is President Trump’s world. At least that is how bond traders are playing it. Fed officials are merely passengers on that train. I don’t mind that traders ignored Fed officials. They should be ignored between meetings. But I am surprised how little deference the bond market is giving the Fed.

Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.

 
 

March 30, 2017


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