The two-pronged Federal Reserve mandate is to control inflation within a pre-determined range and maximize U.S. employment!
And from all observations the economy is fulfilling both with the unemployment rate reported July 2018 at 3.9% and the July CPI rising .2% with an annual increase in the core rate of 2.4%.
If the economy is running too hot or too cold, the fed funds rate is the Fed’s tool lowering rates to spur economic activity and tweak inflation higher or raising them to do the opposite.
The current economic data would seem to suggest that the Fed will remain on track to raise the federal funds rate a predicted 3 to 4 more times this year, putting it in approximately the upper 2% range, still well below pre-financial crisis rates.
In addition the well respected JPMorgan Chase CEO Jamie Dimon recently opined that “I think rates should be 4 percent today. You better be prepared to deal with rates 5 percent or higher – it’s a higher probability than most people think.” (source)
And yet, the 10-year treasury yield remains comfortably below the 3% range despite ‘a U.S. jobless rate below 4 percent, economic growth above 4 percent, and a rare surge in late-cycle government borrowing.’ (source)
And 30-year mortgage rates have only risen to a level last seen about 5-years ago when the unemployment rate was 7.3% and the 10-year treasury was 2.74%.
Why the disconnect between economic performance, price pressures and interest rates?
Is it because of angst around the world that’s resulting in a flight to quality keeping key interest rates muffled or is it because the bond markets, often referred to as the smart money, see something with the economy that other financial markets like stocks may not yet see?
Only time will ultimately tell and we will continue to monitor the situation.
Michael Haltman, President
Hallmark Abstract Service
Heroes To Heroes Foundation, Board Chair
Phone: (646) 741-6101