US Economy and Credit Markets Ended Feb. 17, 2017

Treasury prices dropped slightly over the course of the week as investors speculated that the Federal Reserve is more likely to raise rates during the March meeting than previously thought. Earlier in the month the Fed sounded dovish on the possibility of raising interest rates in March, but more recent comments by Fed officials have suggested that a rate hike in March is still on the table, leading Treasury prices to fall during the first half of the week. Fed Chairwoman Janet Yellen said that the risks of waiting too long to raise rates outweighed the risks of a hike too soon. The consumer price index reading of 2.5% showed strong inflation and was well ahead of the Fed's target of 2% and was widely believed to strengthen the Fed's case to raise rates. Treasury prices decreased the most on the long end of the curve as indicators of long-term inflation expectations have been rising. Philadelphia Fed President Patrick Harker also said that three rate hikes were likely in 2017 if the economy remains on track. Altogether, this led to an increase in the market implied probability of a rake hike in March of 34%, which was up moderately from 28% a week ago. However, Treasury prices did rebound in the 2nd half of the week as the market took a risk-off approach and the equity market cooled off on economic data that was in line with expectations. Major economic reports (and related consensus forecasts) for the upcoming holiday-shortened week include: Tuesday: February Prelim. Markit US Manufacturing PMI (55.2); Wednesday: February 17 MBA Mortgage Applications, January Existing Home Sales (5.55M); Thursday: February 18 Initial Jobless Claims (240,000); Friday: January New Home Sales (573,000), February Final University of Michigan Sentiment (96.0).
Posted on Tuesday, February 21, 2017 @ 8:19 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.