“Rates Determine a Top – Fed Keeps Rates Steady

As we reach the halfway point of the year, the Federal Reserve has made an announcement that sends a message relevant to the entire economy. The central bank has proclaimed that it will not be raising rates anytime soon, a move that indicates the top in rates may be close at hand. In a statement from the Federal Reserve, they cited an “absence of inflationary pressures” as the primary reason for not raising rates. This is directly in line with what Chair of the Federal Reserve, Jerome Powell has said before; that inflation is something they are watching closely but haven’t seen anything remarkable yet. Powell has also stated that the Fed’s main concern is to keep rates steady in order to avoid derailing the economic recovery that is underway. The decision to remain at current levels, however, is certainly not without consequence to the Treasury market. With the announcement, yields across bonds have fallen, signaling that investors see little need for returns from a risk-on perspective. This is not unexpected given the current environment of ultra-low rates. The Fed’s decision could also have consequences for the housing market. As the Fed remains status quo, mortgage rates will likely stay below all-time lows, which in turn could create room for further growth in the housing sector. What the Fed’s decision amounts to is that the current environment of ultra-low interest rates may remain that way for the foreseeable future. This could be beneficial for a number of economic sectors that have suffered during the pandemic, such as small businesses and retail. Furthermore, the current low rates should provide an incentive for people to spend, which is sure to be welcomed by consumers and investors alike. However, it should be noted that the Fed’s announcement is no assurance that interest rates will definitely stay as they are. A number of factors, from inflation to employment, should be monitored closely by investors in order to judge whether the current environment will remain steady or not. One thing is for sure: the Fed remains in no rush to increase rates anytime soon. This should put to rest any speculation regarding where interest rates are heading and help instill confidence amongst investors. Ultimately, it appears that the top in rates may be near as the economy cautiously edges its way towards normalcy.