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The Fed’s April meeting minutes, released Wednesday, showed the central bank was set to raise rates if the economy continued its upswing—but investors aren’t buying it. The bond market is pricing a 28% chance of a June rate hike.
The Fed has been talking about rate hikes since the beginning of the year, but backed off upon early 2016’s market turmoil—so it’s hard to blame investors for not looking this time the Fed cries wolf. (Or hawk, in this case?)
“The Fed and other central banks can get hawkish trying to manipulate the direction of rates, but the market says we don’t believe you,” HSBC head of fixed-income research Steve Major tells Bloomberg. “Structural headwinds to growth and the international backdrop are limitations on how far US rates can go.”
Among international worries are Britain's June 23 vote on whether to remain in the EU, and concerns over a slowdown in China, along with a potential bursting of the Chinese debt bubble. [Bloomberg]
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