October 2, 2017 – Fed Chair Yellen took the stage this week and reiterated that policymakers continue “to anticipate that inflation is likely to stabilize around 2 percent over the next few years” and that the recent bout of “low inflation is probably temporary.” Her comments arrived before Friday morning’s release of the August core personal consumption expenditure (PCE) price index.  The Fed’s preferred measure of inflation fell to 1.29% year-over-year.  As such, policymakers may have trapped themselves with the self-imposed “2% target” potentially proving difficult to hike in December unless monthly inflation numbers move back toward their target.  For now,  market participants are anticipating another hike at the end of the year but as has been the case historically, economic data will continue to drive rate decisions.  

The 10 year Treasury backed up roughly 8 basis points on Yellen’s comments in addition to President Trump’s outline of tax cuts which implies more deficits.  Since the beginning of the year, rates have traded in a narrow 60 basis point range and since April of this year, have traded in an even tighter range of 40 basis points.  Credit spreads also remain in a narrow trading range in addition to remaining near historical lows.  The lack of volatility in the market and stable rates continue to provide a robust backdrop for online, balance-sheet light lenders.  

Opinions expressed within the commentary are general opinions of Chris Lalli and are not opinions of CapAccel or SF Sentry Securities, Inc. Nothing in this commentary should be viewed as solicitation to buy or sell specific securities or a recommendation to participate in any transactions. Securities offered through SF Sentry Securities, Inc., member FINRA/SIPC.

Sources:  TIAA-CREF, Payden & Rygel, Wall Street Journal