As we cross the halfway point of 2021 it’s time to check on the markets. The current market theme revolves around rising consumer costs and inflation. And if inflation persists, will the Federal Reserve raise interest rates sooner than later.
Yesterday the Federal Reserve met to discuss economic and interest rate policy. There was no significant impact to the markets but there was an interesting shift in the dot plot.
This would be a step in the direction of financial markets getting back to “normal”. But it is still 2 years away with a lot of potential roadblocks to pause any change in FED Policy.
Let’s now dive into each asset class and see what’s happening.
Bonds & Interest Rates
Thanks to the change in the dot plot, short term interest rates have some potential to move higher.
When we look at the US 2-year note, we can see it has finally moved outside of the balance area. This creates an expectation that the 2-year note can possibly move to 0.23% - 0.28%.
This is not a large move. But it would be welcomed by investors who put money to work in short term assets. i. e. Corporate cash managers - your humble authors included.