The Fed came and went last week and as expected did not move interest rates higher. However, the committee did continue to voice their intention to raise three times in 2018, keeping the door open for one more hike if need be. That seems to be troubling markets. This past week saw an unprecedented rise in yield, the 10 yr bond rising more than 250bps during the week. That is nearly 10% higher than it was the prior week.
Sharp moves like that are not uncommon. In fact, we saw a massive rise in yield in late 2016 with the 10 yr bond rising up from 1.8% to about 2.6%, the Fed had just brought rates up for a second time. Currently, the Fed continues on their march to normalize the curve (by adjusting the Fed Funds), while trying to unload the bonds from its bloated balance sheet.
But when we consider the reason for yields to rise it is normally due to higher inflation. Bond investors abhor inflation and will sell bonds at a moments notice. Though bond investors know the dirty little secret about the Fed being 'inflation fighters first', they have not believed for years the committee could reach its target of 2% inflation. However, they may be seeing it happen this time around, and that shouldn't be such a bad thing.
Economic growth is coming back, some estimates have this first quarter coming in at a blistering 4%+ pace. That would be ideal, but only if productivity improves and inflation is tame. The yield curve has been steepening, with all segments of the curve rising in concert. The market is making an adjustment to a more normal environment.
What do I mean by 'normal'? Certainly the accommodation and liquidity offered by the Fed over the past nine years was generous and unprecedented. That is coming to an end, the Fed waited for a time when the economy could handle such removal (reduced balance sheet and higher interest rates). With strong fiscal policy (tax cuts, potential infrastructure and less dependence on Fed policy, perhaps the moment has arrived that everyone has been waiting for - the Fed to step aside.
A normal economic cycle with booms and bust periods would be healthy for the economy long term. The fine tuning that Fed policy is charged with may just do the trick. So, when the media cries about higher interest rates dooming the economy or growth plans, don't run away - just embrace it.