Treasury rates moved lower in April as economic data was slightly weaker than expected. Oil prices also subsided in the month, abating some concerns about accelerating inflation. In addition, Operation Twist (which expires at the end of June) continues to put downward pressure on longer-term interest rates.
Though some recent domestic economic data has been weaker than expected, we continue to believe the data is consistent with a slow growth environment. The labor market continues to improve (albeit at a slow pace), consumer spending trends have been healthy and the manufacturing sector remains strong. First quarter corporate earnings have also been generally better than expected. While it seems the pace of the domestic economic recovery has recently moderated, we believe the overall trajectory remains positive. Meanwhile, political turmoil related to the sovereign debt crisis in Europe, along with growing concerns about slowing economic growth in China, continues to create volatility in the global financial markets.
In April, The Federal Reserve Open Market Committee kept policy rates unchanged, with the fed funds target rate remaining in the range of 0.0-0.25%. The FOMC statement was virtually unchanged from March. There was no change to the Fed’s assurance that the fed funds rate will remain exceptionally low through late 2014. Overall, the Fed continues to see the economy as “expanding moderately.” However, comments about the labor market were somewhat cautionary. The Fed held off announcing any additional forms of quantitative easing, and we expect that the Fed will remain on hold for at least the next few months. The next FOMC meeting is scheduled for June 19th and 20th.