Every time the Fed has raised rates over the past four decades, betting that longer-term Treasuries would outperform short-term notes has proved to be a victor, according to data compiled by Bloomberg.
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Fed officials were meeting this week at Jackson Hole Economic Symposium, which is sponsored by the Kansas City Fed. “And the U.S. is in the relatively best position in the world to take the lead and always takes the lead, so I expect that this year once or twice (it will hike rates) and that would surprise markets”, he told CNBC.
On Sunday, Fed Vice Chairman Stanley Fischer said the United States job market was close to full strength and still improving – comments viewed by some investors as underlining the case for a rate hike.
The Treasury two-year note yield rose two basis points, or 0.02 percentage point, to 0.78 percent as of 1:12 p.m.in NY, according to Bloomberg Bond Trader data.
“Every steepening of the curve will be met by buying”, Michele said on Bloomberg Television.
“If you commit to aiming for a higher inflation rate than 2% – I would think temporarily would be a reasonable thing to do – then in that case, you’re also committing, you’re also indicating that you’re not going to react as quickly to data coming in as strong”, Mishkin responded.
Recent strong readings on the U.S. labour market, and signs that inflation is finally beginning to pick up, have begun to encourage some policymakers to believe that rates should rise, if not as soon as September’s policy meeting then at least before the end of the year. The odds the Fed will raise its benchmark this year have risen to 54 percent, from 47 percent a week ago, after Vice Chairman Stanley Fischer joined the presidents of the NY and San Francisco branches in signaling a move in 2016 was still under consideration.
The U.S. economy added 255,000 jobs in July and 292,000 in June, rising the three-month average to 190,000 from 147,000.
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Porta Advisors Partner Beat Wittmann said emerging markets had stabilized sufficiently to cope with a Fed rate hike next month and some European economies would gain from a further rise. Steadier orders would mark an improvement in demand for capital spending that Fed policy makers have described as “soft”. A $34 billion five-year note sale Wednesday saw a bid-to-cover ratio of 2.54, the highest since May. Demand at a $26 billion two-year note auction on August 23 was the highest since May.
