1.) Dovish hike of 25bp – As expected, the FOMC hiked the benchmark target rate by 25 bps to a range of 3/4 percent to 1 percent. The hike was paired with cautious and dovish commentary by Fed Chair Yellen, as she is known to do. The balance of risks is neutral. There was no “reassessment” in the economic outlook but things are progressing in line with the Committee’s expectations for meeting the dual mandate soon. I actually believe the mandate was effectively achieved last year if measured more realistically. There were no notable hawkish surprises. Gold roared higher, bond yields were clobbered, the dollar was slammed, equities surged–with each asset class moving by more than 1% on the day (for a change).

2.) Is the Fed all of a sudden paying attention to asset bubbles again? – The dovish Fed Chair did reiterate during the question and answer session that higher financial asset prices, particularly equities, impact the Fed’s monetary policy expectations. This is a soft admission to keeping an eye on the asset bubbles the Fed’s policies have likely already inflated. In other words, further stock melt ups similar to those experienced in the past few months could cause the pace of tightening to increase in order to put a lid on even larger asset bubbles. One could be forgiven for being skeptical of this materializing given the Fed’s recent history of ignoring asset bubbles until it is too late. But this suggests it is perhaps on the radar more than it has been. Beware of single direction stock moves northward precipitating increased expectations for tightening, thus muting the magnitude of said moves.

3.) 10y Treasury Note had a blow torch lit underneath the bid –  The 10y yield plummeted below 2.5% from above 2.62%. Per my post yesterday, long TLT and BLV cranked out impressive reversals higher from the recent base lows. The move happened so rapidly that I’m keen on taking profit and reassessing. This is a short term bull move in bond prices within what I view to be a longer term bond bear market on tap.

10y plummet 031417