US30Y interest rate hike prognosis over the long term.
Due to the rising inflation, the Fed has stepped in to reign in inflation. Jerome Powell has stated numerous times he will be aggressive with rate hikes just like Paul Volcker was in the '80s. Powell and Volcker are of the same school of thought.
"Inflation emerged as an economic and political challenge in the United States during the 1970s. The monetary policies of the Federal Reserve board, led by Volcker, were widely credited with curbing the rate of inflation and expectations that inflation would continue. US inflation, which peaked at 14.8 percent in March 1980, fell below 3 percent by 1983. The Federal Reserve board led by Volcker raised the federal funds rate, which had averaged 11.2% in 1979, to a peak of 20% in June 1981. The prime rate rose to 21.5% in 1981 as well, which helped lead to the 1980–1982 recession, in which the national unemployment rate rose to over 10%." - Wikipedia on Paul Volcker
What does that mean for us?
In essence, lower equity prices, temporary economic contraction and higher lending rates to reign in cheap capital.
Looking at the 30 year US government Bond Yields (US30Y), I am expecting yields to continue to increase from current 3.2% --> 4.1% --> 4.8% --> 5.5% and finally 7.2%. If inflation continues higher, then rates will likely continue to rise over the next few years. The era of cheap lending is over.
Trade safely.
"Inflation emerged as an economic and political challenge in the United States during the 1970s. The monetary policies of the Federal Reserve board, led by Volcker, were widely credited with curbing the rate of inflation and expectations that inflation would continue. US inflation, which peaked at 14.8 percent in March 1980, fell below 3 percent by 1983. The Federal Reserve board led by Volcker raised the federal funds rate, which had averaged 11.2% in 1979, to a peak of 20% in June 1981. The prime rate rose to 21.5% in 1981 as well, which helped lead to the 1980–1982 recession, in which the national unemployment rate rose to over 10%." - Wikipedia on Paul Volcker
What does that mean for us?
In essence, lower equity prices, temporary economic contraction and higher lending rates to reign in cheap capital.
Looking at the 30 year US government Bond Yields (US30Y), I am expecting yields to continue to increase from current 3.2% --> 4.1% --> 4.8% --> 5.5% and finally 7.2%. If inflation continues higher, then rates will likely continue to rise over the next few years. The era of cheap lending is over.
Trade safely.
