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.

Registration is quick and easy and requires only your email address. If you already have an account with us, please log in. Or subscribe now for unlimited access.

required

Log in

http://prosyn.org/WryKaIw;
  1. China corruption Isaac Lawrence/Getty Images

    The Next Battle in China’s War on Corruption

    • Chinese President Xi Jinping knows well the threat that corruption poses to the authority of the Communist Party of China and the state it controls. 
    • But moving beyond Xi's anti-corruption purge to build robust and lasting anti-graft institutions will not be easy, owing to enduring opportunities for bureaucratic capture.
  2. Italy unemployed demonstration SalvatoreEsposito/Barcroftimages / Barcroft Media via Getty Images

    Putting Europe’s Long-Term Unemployed Back to Work

    Across the European Union, millions of people who are willing and able to work have been unemployed for a year or longer, at great cost to social cohesion and political stability. If the EU is serious about stopping the rise of populism, it will need to do more to ensure that labor markets are working for everyone.

  3. Latin America market Federico Parra/Getty Images

    A Belt and Road for the Americas?

    In a time of global uncertainty, a vision of “made in the Americas” prosperity provides a unifying agenda for the continent. If implemented, the US could reassert its historical leadership among a group of countries that share its fundamental values, as well as an interest in inclusive economic growth and rising living standards.

  4. Startup office Mladlen Antonov/Getty Images

    How Best to Promote Research and Development

    Clearly, there is something appealing about a start-up-based innovation strategy: it feels democratic, accessible, and so California. But it is definitely not the only way to boost research and development, or even the main way, and it is certainly not the way most major innovations in the US came about during the twentieth century.

  5. Trump Trade speech Bill Pugliano/Getty Images .

    Preparing for the Trump Trade Wars

    In the first 11 months of his presidency, Donald Trump has failed to back up his words – or tweets – with action on a variety of fronts. But the rest of the world's governments, and particularly those in Asia and Europe, would be mistaken to assume that he won't follow through on his promised "America First" trade agenda.