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    Fed remains cautious – Wells Fargo Sandeep Kanihama

    Analysts at Wells Fargo, notes that the long-term US interest rates have tumbled in the wake of recent weaker employment and rising uncertainty ahead of the upcoming Fed meeting and Brexit vote.Key Quotes“While the weaker jobs report may well prove to be an outlier, a June hike is clearly off the table. Chair Janet Yellen laid out the case for raising rates later this year, noting that labor markets have tightened across the country and wage increases are accelerating. She also made note of uncertainty surrounding global economic conditions and uncertainty surrounding the Brexit vote in the UK.We expect the Fed to reiterate its concerns about the global economy at this week's FOMC meeting. While no rate hike is expected, the policy statement and the dot plot will hold important clues about when and how much the Fed will raise interest rates over the next couple of years. The financial markets are only pricing in a 53.4 percent chance that the federal funds raise by a quarter percentage point by the end of this year. We believe the dot plot will imply two quarter point moves by the end of this year but will likely have fewer hikes in 2017 and 2018, yielding a lower long-term federal funds rate than the current 3.25 percent.Bond yields moved lower mostly on news that polls continue to show the Brexit vote being close and discouraging reviews on the European and global economies from European Central Bank president Mario Draghi and the World Bank. German 10-year Bund yields broke below 0.01 percent briefly on Friday but rebounded back to 0.03 percent. The drop in German rates has weighed on U.S. Treasury yields but rates have fallen less, given the stronger economic and inflation environment in the United States.”

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