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Fed Raises Rates While Equities Tumble

Yields fell slightly this week as investors fleeing the volatility in equity markets bought bonds.  Stocks erased all of their March gains this week, with S&P 500 YTD returns retreating back into negative territory.  The week's FOMC meeting went largely as expected, as the committee voted unanimously to rates the Fed funds rate target by 25 bps.  Another two rate hikes are expected this year at a minimum, with half of the FOMC members indicating that three more rate hikes could be possible. 

In the statement accompanying the decision to raise rates, the Fed noted that "the economic outlook has strengthened in recent months."  This strength likely contributed to their revised forecast of a more aggressive series of rate hikes in 2019 and 2020.  The Fed also had to factor in the likely impact of the recent fiscal stimulus signed into law by President Trump.  While 2018 GDP growth estimates were raised from 2.5% to 2.7%, the longer-run estimate of growth was unchanged at 1.8%.

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