TLT Investors Grow Pessimistic Ahead of PCE
The countdown to the PCE is growing louder as the bond market grows more nervous.
Investors must again guess how the Fed will interpret the Personal Consumption Expenditures report set to be released ahead of the opening bell Friday morning.
Judging by the two-day price decline for the bond market proxy iShares 20+ Year Treasury Bond ETF (TLT), investors’ recent optimism about inflation and rates has turned pessimistic.
As of Monday’s market close, TLT’s price had gained more than 4% in June as investors began to feel more confident about cooler inflation following two months of softer economic data.
But the mood shifted quickly Tuesday.
Speaking at the Policy Exchange in London, Michelle Bowman, a voting member of the Federal Open Market Committee (FOMC), made a hawkish comment about monetary policy.
“I remain willing to raise the target range for the federal funds rate at a future meeting should progress on inflation stall or even reverse,” said Bowman in Tuesday’s speech.
Following the Fed governor’s remarks, TLT’s price dropped 1% and it fell another 1% by midday Wednesday.
TLT Price Movement and FOMC Voting Members
While investors in rate-sensitive bond ETFs like TLT may feel nervous when a FOMC voting member makes a hawkish statement, such utterances are part of a larger picture. There are 12 voting members with varying opinions that can range from a tight monetary policy to a more dovish approach.
More recently, the Fed’s data-dependent stance has remained consistent among all voting members, meaning that economic data on inflation and unemployment will be the primary driving force in any rate decisions.
Here’s a breakdown of FOMC voting members:
Seven members from the Board of Governors of the Federal Reserve System.
President of the Federal Reserve Bank of New York. This is a permanent voting position.
Four presidents of other regional Federal Reserve Banks. These positions rotate on a one-year basis among the remaining eleven regional bank presidents.
While all twelve Reserve Bank presidents attend FOMC meetings, only the four designated members cast votes on policy decisions.