Will the Federal Reserve raise interest rates again next week, when the FOMC convenes on March 27 and 28? Another way of asking the question: is the central bank willing to add momentum to the forces that have generated an inverted yield curve? If so, what message will the Fed be sending to the markets?
As we write, the two-year Treasury carries a yield that’s four basis points above the 10-year Treasury. Elevating Fed funds up by 25-basis points to 4.75% threatens to increase the inversion by raising the price of short-term money. Indeed, the six-month T-bill is currently 4.80%. Tacking on another 25 basis points would push it over 5.0%.
If there’s any doubt that another 25-basis-point hike is coming next week you won’t find many skeptics in the market for Fed funds futures. The April contract has for some time been priced in anticipation of 4.75%.