Stock, Bond ETFs in Focus as Fed Meeting Looms

Happy Fed Week! The first FOMC monetary policy decision of the new year is scheduled for Wednesday, Jan. 29.

Expectations are that the Federal Reserve will hold rates steady, ending its brief rate-cutting cycle—at least temporarily. Between September and December, the U.S. central bank slashed rates three times, bringing the federal funds rate down by 100 basis points to a range of 4.25% to 4.5%.

Despite those rate cuts, yields on Treasury bonds increased by around 100 basis points in the same period, spooking investors.

Treasury Bonds in the Spotlight

Recent figures on inflation calmed some of those jitters, bringing Treasury bond yields down from their highs, but investors will be paying close attention to the Fed’s monetary policy statement, as well as Fed Chair Jerome Powell’s press conference, to get a sense of how the central bank is viewing the current macroeconomic landscape.

Journalists will surely ask Powell about recent comments by President Trump demanding that interest rates be brought down.
 
Tensions between Trump and Powell were commonplace during Trump’s first term. The president has favored lower interest rates, while Powell has sought to set rates at a level that fulfills the Fed’s dual mandate of maximum employment and price stability.

Since the start of the year, the iShares 20+ Year Treasury Bond ETF (TLT) has lowered by 3.5%, adding to its losses of 8.1% last year.

If the Fed is unexpectedly hawkish, the ETF could continue falling, while a dovish tone could push it back into the green for the year.

Meanwhile, the stock market has largely shrugged off the rise in Treasury bond yields this year, but that could change if the Fed makes headlines.

Bullish investors will look for assurances from the Fed that it won’t suddenly start to hike interest rates again, with some even hoping for a rate cut or two later this year.