The Federal Open Market Committee (FOMC) announcement didn't surprise anyone Wednesday.
At the end of its two-day meeting, the Federal Reserve said the
same thing it has been saying all year: The economy is improving, but
not too fast. Inflation is under control. The Fed will continue to taper
its bond-purchasing program (a form of quantitative easing meant to
keep interest rates low). But it will also keep its target for interest
rates low for the foreseeable future.
But interest rates may give us one anyway...
Take a look at this chart of the 30-year Treasury bond yield...
Interest rates have been falling all year. The 30-year Treasury
yield kicked off 2014 at 3.95%. It dropped to as low as 3.3% three weeks
ago.
With the FOMC tapering its bond-purchasing program, most analysts
expected interest rates would rise. Instead, we got the opposite.
The fall in yields wasn't a straight shot lower. It was a
stair-step decline of lower lows and lower highs. Today, interest rates
are all the way back down to where they were last June – before the Fed
even talked about tapering.
Today, it seems most analysts are expecting rates to continue even
lower or at least remain at their current depressed levels. They argue
the tapering program is going smoothly. Growth in the economy is slow
and steady. And the Fed has everything under control.
Rates started moving higher three weeks ago. This time, the 30-year
Treasury yield did not form a lower high. It rallied above the blue
down-trending resistance line and gave the first signal that interest
rates may be ready to start trending higher.
Rates have trended lower over the past week, and the yield is now
retesting its former resistance line as support. If rates hold up here
and start to bounce, we'll have the first set of higher highs and higher
lows. That will likely indicate the start of a new uptrend for interest
rates.
In short, despite what analysts say, interest rates look poised to rally.
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