The equity market continued its grind higher last week as Treasury yields fell, pushing the 10-year yield down to 1.46% from its 2021 high of 1.74% on March 31. The fall in Treasury yields has boosted stocks, as fears have been abating about a quick rise in yields that could put pressure on risk assets.
This week’s Federal Reserve (Fed) meeting should see the Fed reiterate its view that it is too early to remove any monetary policy accommodation because of the unevenness in the economic recovery. The Fed will likely stress that it continues to believe the recent uptick in inflation is temporary and will level out closer to its 2% target in 2022. More talk about tapering will likely occur in the fall, as the Fed will probably reduce its purchases of mortgage-backed securities before year-end.
With the Fed remaining accommodative and the economy performing well, risk markets should continue to grind higher over the summer months.
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