We entered this holiday-shortened week with our sights set on Wednesday’s release of FOMC Minutes.  Those provide a more detailed account of the discussion that took place at the most recent Fed meeting.  Considering the Fed removed its language ruling out specific months for a rate hike, there was a chance we’d get clues about how soon it might happen.  When we didn’t, the market reaction was tepid, but slightly positive.

In a broader sense, this week served up another repetition in the recent cycle.  That cycle began in early May when rates finally ended a rapid, 2-week run higher.  At the time, we were treated to 2 decent days of improvement (a Thursday and Friday) only to see things get much worse in the following week.  That pattern has repeated twice now, though this week’s version was calmer than last week’s. 

The bigger question is whether or not it means anything about a bigger push back against the recent rise in rates.  After all, rates have managed to stay broadly sideways at current levels, despite a few tense moments.  Could it be that we’ve endured enough weakness to see a better push of strength?  Or could this merely be the way the market is catching its breath before continuing higher in rate?

Unfortunately, the answer is “yes.”  Indeed, the last 3 weeks of trading is reminiscent of that which precedes some of the biggest historical moves.  The problem is that some of them take rates much higher, while others take them much lower.  The takeaway is that risk is extremely high and so is reward as far as locking and floating is concerned.

Looking ahead, we have a slightly more active week of economic data coming up, despite the late start due to the Memorial Day holiday on Monday.  The way markets responded to some of the econ data this week suggests that it will become increasingly important again, as a way for markets to adjust Fed rate hike expectations.