Will AHCA Failure Have Any Impact on US Interest Rates?
Yellen and her team are likely to continue interest rate normalization process
The US Fed remained on its course of normalizing rates, announcing its first hike for 2017 of 0.25% in March. The Fed has maintained its projections for gradual interest rate hikes in 2017 towards a target rate of 1.25%–1.50% by the end of the year. The failure of the Republican Party to pass the American Health Care Act (or AHCA) doesn’t have any immediate bearing on the US Fed.
The two-year yields (SHY), which were trading near 0.9% in November, surged to 1.4% ahead of the FOMC decision in March, but retreated to 1.2% after the AHCA debacle. The longer-duration yields (TLT) also followed similar trends with most of them recovering from the fall that happened after the AHCA failure.
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Comments from the Fed
On March 3, 2017, Fed chair Janet Yellen said, “Looking ahead, we continue to expect the evolution of the economy to warrant further gradual increases in the target range for the federal reserve funds rate, however, given how close we are to meeting our statutory goals, and in the absence of new developments that might materially worsen the economic outlook, the process of scaling back accommodation likely will not be as it was in 2016.”
On March 29, Charles Evans, the Chicago Federal Reserve president, said, “For the first time in quite a while, I see more notable upside risk to growth.”
The FOMC voting members continue to prep the markets for additional hikes this year, but they all have one condition for that to happen. The US economy (EFA) should continue to improve at a stable pace.
In the next article, we’ll look at recent trends in economic data and the next few important data releases that are scheduled for April.