Rate Brief

Updated: 2010-03-19, 16:00:18 ET

The Interest Rate Outlook

Rate Brief
The Federal Reserve Open Market Committee came out and did just what the market anticipated that they would do, that would be um, nothing. They were quick to say they are still not on board entirely (they have a "Dissenter!") but the reality is that they will be on the "exceptionally low" rates for an "extended period" ride for some time. The market read that as they should have, with expectations for rate hikes down the pike falling hard. The reality is that the market is hardly looking for a rate hike before year end at all.
The reality is that the interest rate world is actually leaning more in the direction of "no move" more so than ever before and seeing lower (yes, that would be lower 0.00 funds rate) before they see any hikes. Yes, that would be "Yikes." The fed funds futures guys are sitting at double the rate they were expecting an ease to an absolute zero level by June. The market will be looking for further evidence (extreme low rates of inflation etc) for the near-term.

The good news is that the public is riding along the "low inflation rate expectations ride." For now. But once the higher energy, food assorted costs reality hit, that perception is likely to change. The Fed can only make their own selves look sternly anti-inflation is if they make a move, not just chatter about it.

The current market is pretty, pretty, pretty sure there will be no rate hikes of any sort (and potentially rate decreases and/or further "quantitative easing") before the very end of the year. That should help stocks find their way out, but will leave treasuries to the levels they've been stuck near.

In their statement the FOMC continued to offer assurances that this "tough as tails" (thank you, David) Fed would begin to remove, or at least, follow their set schedule in pulling back the "extraordinary" accommodation measures, even trotting out a "dissenting" vote from hawkish Kansas City Fed-head Hoenig again. Now many had expected some Feder of his ilk to make such a move, but he did not dissent on leaving rates on hold between zero and 25, but to the language, but they also thought maybe thee would be a hanger on, agreeing.

The reality is that the Fed is on hold through year end, and they do not even make an effort to hide the fact.

Beth Malloy