What the Fed means to munis

As the Federal Reserve meets in Washington this week, municipal market participants are wondering what effect rising interest rates will have on tax-exempt bonds.

While the Federal Open Market Committee is not expected to make any moves at this week’s meeting, most Fed watchers believe rates will rise before year end – with or without a new Fed head.

And the market is looking closely at what such a change in Fed leadership could mean going forward. This uncertainty will remain a source of volatility until a decision is made by President Trump on whether to replace current chair Janet Yellen.

Jerome Powell is viewed as closer to Yellen’s thinking on monetary policy while John Taylor is seen as being more hawkish. The yield curve is likely to flatten even more should Taylor be the choice to lead the central bank.

But even with a hike, it’s important to remember that rates will remain at near-historic lows.

With issuers possibly trimming refunding plans, bond buyers may see prices rise amid a dearth of supply.

I’m Chip Barnett and this has been your Muni Minute.

BARNETT: As the Federal Reserve meets in Washington this week, municipal market participants are wondering what effect rising interest rates will have on tax-exempt bonds. While the Federal Open Market Committee is not expected to make any moves at this week's meeting, most Fed watchers believe rates will rise before year end, with or without a new Fed head. And the market is looking closely at what such a change in Fed leadership could mean going forward. This uncertainty will remain a source of volatility until a decision is made by President Trump on whether to replace current chair Janet Yellen. Jerome Powell is viewed as closer to Yellen's thinking on monetary policy while John Taylor is seen as being more hawkish. The yield curve is likely to flatten even more should Taylor be the choice to lead the central bank. But even with a hike, it's important to remember that rates will remain at near-historic lows. With issuers possibly trimming refunding plans, bond buyers may see prices rise amid a dearth of supply.

I'm Chip Barnett and this has been your Muni Minute.