Fed funds futures have rallied in tandem with Treasuries
Fed funds futures have rallied in tandem with Treasuries after the softer profile in today's data added to the cautious tone from Fed Chair Yellen's testimony this week. Though the reports didn't materially impact our 2H outlook for a pick up in growth and some firming in prices, the optics are bad for this FOMC to continue on its normalization path currently. Given the current dynamics, it's highly unlikely the Fed will make any changes at its July 25, 26 meeting, either in terms of rate or the balance sheet -- analysts were looking for the Committee to announce QT at the September meeting anyway, to begin in October, with the next rate hike in December. Neither the data nor Yellen's testimony challenge that forecast. Implied rates are now suggesting slightly less than a 50-50 proposition for a third tightening in the funds rate in 2017.