Good afternoon! The Federal Reserve statement (http://www.federalreserve.gov/newsevents/press/monetary/20140618a.htm) was just released, and policymakers did what the markets expected – no change to rates, no change to taper pace. I felt there was an outside chance of a change to a $15 billion taper from $10 billion, but we didn’t get that. So now it is up to Janet Yellen (starting at 2:30 p.m.) to take the podium and explain the Fed’s thinking.
In the immediate aftermath of the announcement, markets have been all over the map. Bond prices and Eurodollar prices initially rose, then swung all the way back into negative territory. The dollar initially fell, then rallied back to flatline. Gold and silver rallied, sold off, then rallied again. But everything is about where it was pre-statement as I write. The economic language in the statement was fairly optimistic, highlighting generally strong growth outside of housing. There wasn’t much about inflation risk there in light of the dismal CPI report … if anything, the Fed statement still hinted at the risk of too-low inflation.
If I had to guess what should happen, it’s that we should get a bear steepener. In other words, we should see all rates go up, but longer-term rates to go up faster than shorter-term rates because the Fed is seeming to accommodate/accept potentially higher inflation. But anything CAN happen, as we all know, on Fed days. Let’s see what Yellen has to stay. I’ll have more on this later today.