- As expected, the Federal Reserve continued its slow path toward normalizing interest rates this week, raising the target federal funds rate to a range of 1%–1.25%.1 Along with Wednesday’s rate hike, policy makers made very few changes from the March meeting to their Summary of Economic Projections. They affirmed their plan to raise interest rates for a total of three times in 2017.1
- At the accompanying press conference, Chair Yellen brushed off recent softness in inflation data, referring to lower readings as having been “driven significantly by what appear to be one-off reductions” in certain prices.2
- While members of the Fed remain confident that recent economic weakness is likely “transitory,” markets seem less certain.3 Yields on 10-year Treasury notes have declined fairly steadily since March.
- The market-implied probability of the FOMC enacting three rate hikes in 2017 dropped below 50% this week.4 Additionally, 5- and 10-year breakeven inflation rates, which measure market-implied inflation expectations, dropped sharply this week, furthering a trend that began in late January 2017.5
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