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• Position: Off The News - Brief Article

When the Federal Reserve at the end of June raised short-term interest rates for the first time in this economic cycle, long-term interest rates for the first time in memory fell. This was unusual. More commonly, long-term rates go up by even more than the Federal Funds rate is raised because the market usually perceives even greater future tightening. Often a Fed rate hike is perceived as a sign that the Fed is trying to catch up with inflation, not stay ahead of it. But as the June Federal Reserve statement put it, "even after this action, the stance of monetary policy remains accommodative ...".

The initial drop in long-term rates could have meant that the market is not particularly afraid of inflation and/or that excessive expectations of higher rates have already been absorbed into the market's outlook.

The upshot of this confusing development is that Fed...