Quote:
Originally Posted by DrVenture
We have a bit to go, yet. I'd say 12-18 months before we know how this plays out. If I had to guess, it will be 12 months of rate cuts totaling no more than 1-1.5%, and 6 months more to see where that leads us.
I could see us sitting at a FED funds rate of 3.5% (give/take 50 basis points) going forward barring any serious issues as demonstrated by GDP or jobs. My guess is that FED would like to use this opportunity to "normalize" rates and will avoid dropping too low without serious economic problems forcing additional action. 2.5-3.5% FED funds rate is considered neutral.
This is nothing but pure speculation on my part. It will be interesting to look back later and see if it holds water.
it is also important to note that the 10-yr treasury is not entirely controlled by the FED funds rate - "The yield on the 10-year Treasury has many drivers. For example, when economic confidence is high, demand for safe-haven assets (like Treasuries) falls. This pushes prices lower and yields higher. Yields are also influenced by uncertainty related to future inflation, growth and geopolitical risk. The 10-year Treasury yield may impact other longer term rates in the economy such as fixed-rate mortgages and corporate borrowing costs.
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Well said. I’d add that both candidates are promising substantial fiscal stimulus so the FED could have to offset that with monetary tightening, if either candidate’s party gets enough of the house/senate to actually enact their promises.