The last fed meeting for Janet Yellen and for 2017 is on tap to begin Tuesday. An announcement at 1 PM Wednesday for a 1/4 point rise in discount rate is almost certainly in the works and shouldn’t have any directional effect on current trading levels. The FOMC forecasts and press conference following the meeting might. Powell will then take over as chairman and he doesn’t seem to hold any very strong convictions at moment. He has mentioned that overall the economy remains under powered . This is probably a good reason why the market has been locked in a trading range and is willing to wait and see how the coming tax changes move the needle on inflation and growth next year . We will have some fresh readings on current inflation with a PPI report Tuesday morning. On Thursday the PMI composite and retail sales should give a read on the current strength of business activity. There is also new supply hitting on the long end as 20 billion of ten year notes and 12 billion in thirty year bonds are auctioned by the treasury on Monday and Tuesday. Looking back at the past year we’ve seen a market that’s been able to do much better than most had forecast but in fact didn’t have to rally or even do much in order to accomplish this. That’s because the key move has been the flattening yield curve . The two year and five year charts have clearly been in a great downtrend mode as opposed to the obvious tight sideways range for the thirties. Looking forward to next year the tax cut and a new push for major infrastructure spending for the U.S. might at last overheat things up out in the real economy. Another market mover of some influence will be EU Central bank probable move to finally reduce its QE purchases later in 2018. The crazy low and even negative European long rates which were the result of that policy resulted in a lot of money fleeing to the U.S. These flows supported our coupon yields regardless of the fed hikes. There are reasons to expect higher volatility for the interest rate futures in general for 2018.
