DECEMBER 17, 2018 – WILL THE DECEMBER RATE HIKE BE THE LAST FOR A WHILE?
A week ago, James Bullard, St. Louis Federal Reserve President, said the central bank may consider postponing its anticipated December rate increase because of an inversion of the yield curve. Bullard; known to be dovish and a non-voting member this year; feels the current level of rates is appropriate. He thinks the Fed should delay acting until January.
A negatively sloped yield curve often will signal an economic recession, but the timing is not foreseeable. As the yield curve flattens, investors believe economic growth and inflation will slow. The probability of a US recession in the next two years has jumped to 40 percent, according to a Reuters poll; the last time the probability was this high was January 2008, less than a year before the onset of the Great Recession.
The market still feels there is about a 76 percent chance the Fed will increase the overnight rate this week. Even with a rise in concern about the future, the Fed will not be lowering rates any time soon. If you lock into a swap today, you will still be getting the lowest rate available for a while.