Market Commentary – 9/23/16

This past week, we’ve observed ongoing dovish commentary from both the Japanese Central Bank and the United States Federal Reserve. Japan initiated the rally towards lower bond yields with its dovish statements including an announcement that it will target a zero rate 10-year government bond and negative interest rates on short term bonds to combat deflation. Here in the U.S., our central bankers punted on raising short term interest rates even though there were three dissension votes on this decision.

The decision to keep rates steady was based on continued anemic long term growth forecasts, mild inflation, and low wage growth. However, the Fed did leave open the possibility of increased rates later this year. With two Fed meetings remaining in the year, the odds of a rate increase on the short term lending rates is 60%. Some on Wall Street are beginning to become concerned that “low rates for longer” could create unforeseen bubbles in certain asset prices. We would not be surprised to see the Fed raise short term rates by ¼% before the end of 2016.

As of the time of this writing, we are cautiously biased toward locking in interest rates as has been our opinion for quite some time.