Treasuries See Further Upside Following Fed Announcement

After ending the previous session roughly flat, treasuries moved higher over the course of the trading day on Wednesday.

Bond prices saw modest strength for much of the session before seeing further upside going into the close. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 4.3 basis points to 1.790 percent.

The late-day advance by treasuries came after the Federal Reserve announced its decision to leave interest rates unchanged after three straight rate cuts.

The decision was widely anticipated, although the Fed’s economic projections provided along with the announcement also showed a majority of FOMC participants now expect interest rates to remain on hold throughout 2020.

Fed Chairman Jerome Powell suggested during his post-meeting press conference that he would not consider raising rates until inflation picks up significantly.

“In order to move rates up, I would want to see inflation that’s persistent and that’s significant,” Powell said. “A significant move up in inflation that’s also persistent before raising rates to address inflation concerns. That’s my view.”

However, Powell noted his comments do reflect “official forward guidance,” adding, “It happens to be my view that that’s what it would take to want to move interest rates up in order to deal with inflation.”

The Fed downwardly revised its forecast for core consumer price growth in 2019 to 1.6 percent from 1.8 percent, while the inflation estimates for the next three years were unchanged.

In its accompanying statement, the Fed said the current stance of monetary policy is appropriate to support a sustained economic expansion, strong labor market conditions, and inflation near its symmetric 2 percent objective.

The central bank maintained its assessment of the economy, reiterating that recent data indicates the labor market remains strong and that economic activity has been rising at a moderate rate.

The Fed also once again noted that while household spending has been rising at a strong pace, business fixed investment and exports remain weak.

The FOMC noted it will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path for rates.

The vote to leave interest rates was unanimous, as Kansas City Fed President Esther George and Boston Fed President Eric Rosengren joined in after voting against the past three rate cuts.

In U.S. economic news, a report released by the Labor Department showed consumer prices in the U.S. increased by slightly more than anticipated in the month of November.

The Labor Department said its consumer price index rose by 0.3 percent in November after climbing by 0.4 percent in October. Economists had expected prices to edge up by 0.2 percent.

Excluding food and energy prices, core consumer prices crept up by 0.2 percent in November, matching the uptick seen in the previous month as well as economist estimates.

Consumer prices in November were up by 2.1 percent compared to the same month a year ago, reflecting a notable acceleration from the 1.8 percent increase in October. The annual rate of core price growth was unchanged at 2.3 percent.

“A rise in energy prices pushed headline CPI inflation up to a one-year high last month, but the stability of core inflation suggests that underlying price pressures remain subdued,” said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, “In that environment, we expect the Fed to remain on the side-lines for a lot longer than today’s FOMC meeting.”

Early trading on Thursday may continue to be impacted by reaction to the Fed announcement, although reports on weekly jobless claims and producer prices are also likely to attract some attention.

Bond traders are also likely to keep an eye on the results of the Treasury Department’s auction of $16 billion worth of thirty-year bonds

The material has been provided by InstaForex Company – www.instaforex.com