Interest Rate Roundup

Wednesday, June 21, 2006

Critical Fed meeting right around the corner...

The Fed's next policy setting meeting is a two-day affair that concludes next Thursday, June 29. A 25 basis point is locked in, as far as I'm concerned. But what about the outlook for the future? Is there a chance they go 50? I'll be back to share my thoughts in a few days. Suffice it to say that I think the Fed could end up being tougher than the markets (stock AND bond) expect. The mini-panic in financial markets is over ... oil is climbing right back toward new highs again ... the latest economic data (ex-housing) is relatively strong both here and overseas ... and foreign central banks are hiking from one corner of the world to another. Pause? Not bloody likely.

As for Treasuries, yields are breaking out all over. The weekly chart of 10-year T-Note yields (above) shows we took out the highs of early 2004, re-tested those highs, then started taking off to the upside again. There's some longer-term resistance around 5.5%. But if the federal funds rate is headed to that level in the next few months (and right now, both the futures market and me think we are), that could give way. More food for thought for the "one and done" crowd.


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