The Federal Reserve has added to its stores of credibility by maintaining its policy rate at a long-promised artificially low level through mid-year 2015.
With QE nearly finished the Fed now has to outline their plans going forward. Will there continue to be reinvestment of the QE bonds that roll off, what many expect or will market conditions decide that.
At last week’s FOMC meeting the committee allowed for a weak start to the year by lowering its overall 2014 GDP estimate to 2.1%, which assumes a stronger rebound for the rest of the year than is implied by the latest durable goods report.
A survey published yesterday showed a majority of economists expected the Fed to raise its federal funds target rate faster than money-market investors priced in.
The Eurodollar curve has spreads steepening with the pivot point of the curve moving out from June 2005 to September 2005. The market moved this pivot in when Janet Yellen suggested the Fed might start raising rates six months after the end of tapering.
