Some notes on the Federal Reserve's situation as we look forward to its decision today ...
* The fed funds futures market is priced for the Fed to deliver its first rate hike by the September 16th FOMC meeting, which explains why the 2-year note has been trading close to a percentage point over the funds rate, since 2s tend to trade at such a wide spread when a hike is around the bend.
* I personally have not agreed with the expectation, since I believe that the Fed's concerns about the financial system and economic risks outweigh its concerns about inflation risks. This is why I have said that the recent rate rise has been excessive.
* Nevertheless, I do agree with the idea that rate increases are more likely than rate cuts, leaving little room for a rally in Treasury prices. In other words, while yields are not likely to climb much in the near-term, they probably won't fall much either.