Do The Bond Markets Still Trust The Fed?

The Fed on Wednesday somewhat surprisingly raised short-term rates by 75 basis points. It’s expected they will raise rates in July by another 50 bps or possibly 75 bps. The Fed’s interest rate dot plot shows that the Fed Funds Rate will be 3.40% by end of the year, which is an increase of 1.75% from today.

The Fed is also projecting that the unemployment rate will only increase by 0.1% this year to 3.7% and they expect GDP growth of 1.7% this year. However, in the first quarter GDP shrank by 1.5% and the Atlanta Fed is currently predicting NO GDP growth in the 2nd quarter. What damn planet is the Fed living on? Are they really this stupid?

The Fed also believes that inflation will moderate and start to drop by end of the year and inflation will drop dramatically next year. Please see my story below on why consumer inflation may hit 10% this summer.

I don’t think the bond markets trust the Fed anymore when you look at the wild volatility in the markets. One reason for these wild price swings is the lack of liquidity in the bond markets I have read. Is this a sign that bond investors don’t want invest their money in our mortgage bond market? Let me highlight the 4.50% mortgage bond—
· Monday we had price swings of 108 bps
· Tuesday we had price swings of 98 bps
· Wednesday we had price swings of 133 bps.
· Thursday we had price swings of 108 bps

This is unheard of volatility and its because the Fed is so clueless about inflation and our economy. Thus, with this intense volatility mortgage rates are remaining at 6%. It’s maddening to me.