Looking Back at When the Markets Appeared to Be Ahead of the Fed
August 19th, 2022
The US Federal Reserve announced Wednesday, June 15, its decision to raise the federal funds rate by 0.75%, the largest rate hike in nearly two decades. The market’s response? US Treasury yields actually fell slightly compared to the curve’s position on June 14. This is not to suggest bond markets shrugged off the Fed’s actions. Looking at the yield curve over preceding days (see Exhibit 1), it’s apparent the market was ahead of the curve—yields jumped from June 10 to June 13 upon signals from the Fed that higher-than-expected rate rises were coming. By the time the announcement was official, a 75-basis point rate hike was old news to investors. This example serves as a reminder of the power of markets and the fact that expectations of Fed activity may not be reliable inputs for asset allocation decisions.
US Treasury yield curves, June 10–June 15, 2022
Past performance is no guarantee of future results.
Data from the US Department of the Treasury.
Federal funds rate: The interest rate at which depository institutions lend balances at the US Federal Reserve to other depository institutions overnight.
This material is in relation to the US market and contains analysis specific to the US.
The information in this material is intended for the recipient’s background information and use only. It is provided in good faith and without any warranty or representation as to accuracy or completeness. Information and opinions presented in this material have been obtained or derived from sources believed by Dimensional to be reliable and Dimensional has reasonable grounds to believe that all factual information herein is true as at the date of this material. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. Before acting on any information in this document, you should consider whether it is suitable for your particular circumstances and, if appropriate, seek professional advice. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized reproduction or transmitting of this material is strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.
This material is not directed at any person in any jurisdiction where the availability of this material is prohibited or would subject Dimensional or its products or services to any registration, licensing or other such legal requirements within the jurisdiction.
“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd, Dimensional Japan Ltd. and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.
Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.
Investment products: • Not FDIC Insured • Not Bank Guaranteed • May Lose Value
Dimensional Fund Advisors does not have any bank affiliates.