The Fed may not raise rates until 2028
According to the Natixis IM study, the choice between Trump or Biden will be virtually indifferent to US government bonds. The monetary policy of the Federal Reserve, the US central bank, will weigh more on the profitability of the US debt than who will hold the Executive Power.
The ‘price of money’ is currently in the range of 0% -0.25%. The Fed slashed it to that record low in mid-March as one of its drastic measures to deal with the coronavirus crisis. After its recent change in strategy, the market assumes that rates may even fall further in the short term.
Jerome Powell, the Fed chairman, announced a significant shift in dealing with inflation at the end of August. The central bank will allow prices in the US to rise moderately above its traditional target of 2%. In practice, this implies that the Fed will be less inclined to raise interest rates when the unemployment rate falls.
The experts at ING Economics stress that interest rates will be lower for longer. The ‘price of money’ in the United States surely will not increase in years. They even believe that the Fed may not even raise rates until 2028.
Fed holds an important meeting on Wednesday
The central bank will hold an important meeting this Wednesday. It seems like one of the most anticipated appointments by experts after the August decision.
ING Economics points out the importance of the new language that the Federal Reserve will adopt. It can include a time factor, such as saying that interest rates will not rise before the end of 2022. Or it could depend on the result, as they will not raise rates before the unemployment rate has fallen to 5% and inflation has reached 2% sustainably.
According to Bloomberg, there is a 4.7% chance that the central bank will cut interest rates further on Wednesday. And they do not see any possibility that they will increase throughout this year or in 2021. For its part, the CME Group is confident that the rates will stay the same. But in any case, the Fed rate hikes will be expected.
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