Market Review

The Federal Open Market Committee’s (FOMC) statutory mandate is to foster maximum employment and price stability. Based on these goals, we believe the Fed had enough data to resume raising rates in a measured manner at the March meeting. However, the committee left rates unchanged.

The biggest change from previous Fed meetings was the lower forecasts for future rates. The Fed’s latest projection for the median federal funds rate at the end of 2016 is 0.875%, which indicates two rate hikes in 2016. This estimate was reduced from the four hikes projected at the FOMC’s December 2015 meeting. The next FOMC meeting will be held on April 26-27. 

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The U.S. economy began 2015 at a feeble pace, weighed down by the West Coast port closing and a brutal winter through the central and eastern portions of the country. Reflecting the economic softness, interest rates fell dramatically during January 2015, with U.S. Treasury benchmarks hitting their low yields for the year by February 1. The 10-year was a stunning 46 bps lower for the month, yielding 1.77% on January 31, with some market prognosticators proclaimed it was headed toward 1.25%. 

Instead the weakness proved transitory. When rates bounced back in the spring, they remained in a relatively tight range. This was surprising given the elevated geopolitical and economic events.

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Global Events in the Spotlight

Greece’s struggles with their creditors and the possibility of an exit from the Eurozone have been in and out of the news since the euro crisis began in 2010, but dominated the financial markets as we opened the third quarter. After a series of intense negotiations, Greece and its international creditors agreed to a third bailout. The latest agreement calls for loans of €85 billion over the next three years.

Shortly afterwards, China replaced Greece as the headline country.

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Will they or won’t they?

That question, applied to two different circumstances, is currently the most asked in the financial marketplace. Each response has the potential to significantly impact the markets.

  • Will the Greek people vote to move ahead with the deal on the table?
  • Will the Federal Reserve raise overnight rates in 2015?
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