I have had the privilege once a month over these past several years of writing this one-page market update. Several of you have come up to me at various credit union functions and told me how much you enjoyed reading this monthly update. Over the years several folks have expressed their appreciation for my efforts; the former President of the California Corporate Credit Union, a man we referred to as the father of Corporate Credit Unions, upon his retirement sent me a letter, the President of the former Hawaii Corporate came up to me at a Corporate meeting and said how much he enjoyed it, the President of the Georgia Corporate sent a note thanking me and telling me that he passed FYI around to his senior staff, the President of the Maine Corporate asked if he could reprint FYI, and there have been others. I tell you this not to brag, but to explain why writing this month’s FYI is so difficult.
In last month’s FYI we discussed my belief that unofficially, the recession has ended. It will not be declared over until the NBER, an organization we have discussed in previous FYI’s, makes it official. However it gives me a certain amount of comfort in knowing I am leaving you with an economy that is starting on the long road back to recovery. I am the first to admit that the unemployment situation continues to stink, however, the most recent numbers show an improvement, dropping from 10.2 percent to 10. Not exactly a stellar improvement, but a step in the right direction.
Over the past 17 years we have seen my favorite indicator, the overnight rate known as the Federal Funds rate, go from as high as 6.50 percent in May of 2000 to as low as its present range 0 - .25 percent. As many of you know I started my journey in 1970 as a Federal Funds trader at a small bank in Pittsburgh, formerly known as Pittsburgh National Bank, now PNC. We have both come a long way. I have referred to the Federal Funds rate as the mother of all rates. It is the rate that is set at Federal Open Market Committee meetings and is used to adjust monetary policy. This, like so many things, changed during the most recent economic debacle known as the Great Recession.
What I am about to say is not profound; however I believe rates are going to begin rising soon. Whether that be in the spring or the fall is not as important as the fact that they are going to rise. If I am correct about the Great Recession ending, then it only makes sense that the bond vigilantes will anticipate the Federal Reserve raising rates. What is profound is with our current deficit and huge Treasury auctions; rates could rise much higher and faster than is currently expected. I have previously referred to the current U.S. Treasury market as a bubble and it is due for a correction. With this, my final prediction, comes one word of advice, be cautious.
As the title says, “With Every Beginning There is an End.” Unfortunately FYI has reached its conclusion. Thank you all and take care.
