On Thursday, the Federal Open Market Committee (FOMC), the arm of the Federal Reserve that determines the direction of the U.S. monetary policy, announced a very dovish statement on interest rates, stating that they are turning away from interest rate hikes in 2019. The FOMC also announced that is would set an end date to its quantitative tightening program of gradual rate increases. The Federal Reserve has been forecasting gradual interest rate hikes for the past three years.
The Federal Reserve Chairman Jerome Powell said, “The economy is in a good place,” though it is facing pressure from a slowdown in the Eurozone and Asia. The FOMC generally raises rates when it feels the economy is strong enough to handle such a rise. When the FOMC forecasted no rate hikes this year, it made investors wonder if there could be a weaker outlook for growth domestically and globally.
When interest rates rise, the price of the underlying bond goes down. As you can see from the chart above, T-Bond Futures have been in a three-year downtrend, coinciding with rising interest rates. Bond Futures bottomed out late in the fourth quarter of 2018. Early before the start of this year, Bonds crossed above both the 100-day and 200-day Moving Averages, a positive sign technically for technical analysts. Shortly after that, Bond futures broke out of the three-year downtrend they established after making highs in July of 2016. Since then Bond futures have technical support above the 100-day and 200-day Moving Averages and after the fundamental news from the FOMC not increasing interest rates, T-Bonds could possibly be in for a rally.
The news of potential weaker growth and slowing of the global economy sent the Stock Market down on Friday, turning the S&P 500 negative for the week. As of yesterday’s close, the S&P 500 was just over 3% from testing it’s all-time high it established late in the third quarter of 2018. The Next FOMC meeting begins on April 30th. Hopefully next time we hear from them, they will have a better outlook for the global economy.