Slow Growth for US Interest Rates

The US Federal Reserve’s new policy statement will be widely discussed, as investors seek guidance on when and how quickly interest rates will be raised. Notably, the word “patient” does not appear; but the particular wording is far less telling than the context in which the statement is being released.

LONDON – The US Federal Reserve’s new policy statement will, as usual, be analyzed in excruciating detail in the days ahead, as investors seek guidance on when and how quickly interest rates will be raised. Notably, the word “patient” does not appear, and the Fed has signaled that it may raise its benchmark rate as early as June. But the particular wording is far less telling than the context in which the statement is being released.

In fact, uncertainty about monetary policy in the United States has been the leading driver of financial-market volatility this year. After all, the potential effect of interest-rate hikes on the US yield curve has a major impact on the pricing of all global assets.

But three factors suggest that investors are over-emphasizing the risk of a curve re-pricing. First, economic developments will likely lead the Fed to exhibit caution when it comes to the process of raising interest rates. Second, even if the Fed acts quickly, investor appetite for returns will anchor yields. Third, the technical features of the market will ensure strong demand for US Treasury bills.

To continue reading, please log in or enter your email address.

To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/WryKaIw;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.