Taxable Money Market Commentary
by Senior Portfolio Manager Patricia Larkin
This is Patricia Larkin with a Money Market Commentary for May, 2015.
• Economic growth disappeared in the first quarter, with the Commerce Department reporting the U.S. economy grew by just 0.2%. To add insult to injury, that number is very likely to be revised downward as the worse-than-expected March trade balance figures are taken into account. Clearly, the brutal winter in much of the country contributed to the slowdown, but market participants and policymakers will be following incoming data closely to see if this slowdown was just a short-term pause or a sign of deeper economic problems. One bright sign was the rebound in payrolls for April, which grew by 223,000 following March’s disappointing revised gain of only 85,000.
• At its April 29 meeting, the Federal Reserve acknowledged the first-quarter slowdown, but did specifically mention transitory factors as playing a part in the slowdown. While a rate increase at the June Open Market Committee meeting is technically still on the table, it seems likely that the Committee will want to see further signs of significant economic strength before taking its first step in monetary policy tightening since the financial crisis. While many members of the Fed have indicated they would like to begin the process of rate normalization, they do not want to be in the position of tightening in the face of a slowing domestic economy if the first quarter growth number does not turn out to be transitory.
• The Fed has always stated that any policy moves would be data dependent. The weakness in the first quarter has simply reinforced that fact. It will probably require a strong rebound in growth, continued gains on the employment front and signs of inflation heading higher to get the Fed to pull the trigger on higher overnight rates. In addition to the mentioned domestic issues, the Greek drama with the E.U., the growing instability in the Middle East and continuing tension with both Russia and China add to the factors that could lead the Fed to maintain the status quo longer than is currently expected. We intend to follow our long-held conservative credit policy while seeking to maintain appropriate levels of liquidity.
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The statements expressed in this commentary are those of the author as of the date of the article and do not necessarily represent the views its affiliates. The views expressed are subject to change rapidly as economic and market conditions dictate of Dreyfus or, and the statements in the commentary should not be construed as an offer to sell or a solicitation to buy any security. The commentary is provided as a general market overview and should not be considered investment advice or predictive of future market performance. Contact Dreyfus or your advisor for more current information.