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Staff: market expectations could raise rates later this year; city to stick with laddering
Summary
Finance staff reviewed treasury yields and said markets are pricing in a chance of rate increases; staff told the committee the office plans to pursue a laddering strategy rather than wholesale reallocations if rates move.
Kelly summarized recent Treasury yields and Federal Reserve action, telling the committee the Fed had held rates in mid-June and that market pricing shows a non-trivial chance of future rate increases.
“They held them where they were, stating that the economy remained stable...There’s a 35% chance now being built in that the Fed will actually increase rates,” Kelly said, and later suggested the market’s probability estimates for a September or later move could rise.
Asked whether possible rate increases would prompt reallocations, Kelly replied the office would maintain its normal strategy of filling the maturity ladder and reinvesting maturing securities at prevailing rates rather than executing large portfolio shifts.
The committee heard that liquid investments in the portfolio would react more quickly to rate moves and that staff would use maturities as opportunities to capture higher yields when available.
