BNY Mellon Weekly Fixed Income Market Commentary

Shifting Sands

The market continues to begrudgingly acknowledge that it may have underestimated the Fed’s resolve in raising rates this year and particularly this summer. Of course, the market’s skepticism was borne from the numerous times the Fed cried wolf, declaring that it was going to raise rates, only to find reasons not to pull the trigger. Within recent memory, we can point to periods last summer, last September and early this year as times the Fed talked the chances of a hike only to ultimately decide to do nothing. Whether it truly intended to hike rates during these periods, or was simply preserving its option to raise rates by pushing the odds in the futures markets higher, is subject to debate. We are not blaming the Fed for its decisions during these periods, or at least not totally blaming them, as there always seems to be something going on with the markets or global economy when the talk of a Fed hike intensifies. Therein may lie one of the main challenges that the Fed faces, in that the very act of tightening credit conditions elicits the visceral response in the market and global economy that we saw during the taper tantrum at the beginning of the year and during the many bouts of tightening which led volatility over the past year.

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