Yahoo Finance Bill Gross on the Fed’s Dovish Statement
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Bill Gross: Did the Fed make the right call?
The FOMC (Federal Open Market Committee) met on March 15–16, 2016. The committee’s statement had a more dovish tone than what the Markets expected. The decision seemed to dominate Stanley Fischer’s inflationary fears. Fischer had suggested that “inflation is just around the corner.” With the unemployment rate low, one might expect to see wage inflation.
In a recent webcast by Janus Capital (JNS), Bill Gross shared his take on the March FOMC outcome, the current Market environment, and central bankers. He also gave his outlook for 2016.
Gross believes the March FOMC statement surprised the Markets by being more dovish than expected. He believes that current initiatives by the Fed seem to be aimed toward generating stock market growth, which would ultimately translate to 2% growth in the economy. For Gross, the statement seemed to suggest there’s going to be no rate hike in April and that there may not be one over the next several quarters, going by economic indicator readings.
Market reaction to the March FOMC statement
At the March FOMC meeting, the Fed decided to keep the federal funds rate unchanged at 0.25%–0.50% and hinted at a wait-and-watch approach by the Fed. Here’s how the Market reacted to the statement.
Stocks didn’t do that well. The benchmark S&P 500 tracking the SPDR S&P 500 ETF (SPY) rose 0.58% at the close of March 16. Usually, a dovish FOMC statement is followed by a larger gain in stocks. In fact, the financial sector (XLF) fell 0.22% on March 16.
The dollar declined by 2%. The PowerShares DB US Dollar Bullish ETF (UUP) fell 1.1% with it.
U.S. Treasury yields fell across the yield curve for the week ended March 18, 2016. We saw a reversion in the yield curve. The iShares 20+ Year Treasury Bond (TLT) rose 0.30%, while the iShares 1-3 Year Treasury Bond (SHY) rose 0.20% on March 16.
High-yield bonds gained. The iShares iBoxx $ High Yield Corporate Bond (HYG) rose 0.67%, and the SPDR Barclays High Yield Bond ETF (JNK) recorded a 0.70% rise on March 16. In the short term, risk assets are encouraged by the promise of liquidity going forward.
On March 29, Fed chair Janet Yellen delivered a Market-moving speech in New York on the outlook, uncertainty, and monetary policy, which seemed to underline the FOMC’s March decision.
Let’s move on now to see why central bankers continue to surprise Bill Gross.
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