• 10-year U.S. Treasury yields reached a year-to-date low this week in response to President Trump’s suggestion to The Wall Street Journal that he “like[s] a low interest rate policy” and is open to keeping Fed Chair Janet Yellen in place for another term.1,2 At the same time, the U.S. dollar retreated after he noted that “our dollar is getting too strong.”2
  • Both moves highlight a broader trend that has taken shape in recent weeks, with markets retracing some of the so-called “reflation trade” that took hold after the November U.S. presidential election.
  • To this end, market-implied inflation expectations have declined considerably in the first two weeks of April.17 As the chart highlights, investors also have become more skeptical that the Fed will follow through on the three rate hikes it had originally projected for 2017.3,4
  • Investors now assign a probability of just 31% that the FOMC will enact three rate hikes this year, a decline of approximately 6% in just one week.3
  • Despite the Fed’s intentions to pull back from the era of extremely stimulative monetary policy, investors appear to be confirming their belief that we have not yet exited the “lower for longer” environment of recent years.5

1 Federal Reserve Bank of St. Louis, http://bit.ly/29ecBfp.
2 The Wall Street Journal, http://on.wsj.com/2ofc6W4.
3 Bloomberg.
4 Federal Reserve summary of economic projections, December 2016, http://bit.ly/2h1fW2h.
5 The Wall Street Journal, http://on.wsj.com/2nySUr7.

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