Bond Dealers Expect Fed to Keep Rates Low Even After December Hike

The Federal Reserve is widely expected to raise interest rates next month, a move that some worry would make it harder for the central bank to achieve its goal of 2 percent inflation.

Wall Street says worry not: A newly released survey of the nation’s biggest bond dealers suggests Fed policy will be easy for years, even after a series of rate hikes.

The results show that primary dealers believe the neutral rate—the borrowing cost, adjusted for inflation, that keeps the economy at full employment with stable prices—is currently around zero, and will rise more or less in a straight line to 1.5 percent by the end of 2018. Compare that with the Fed’s own projections of where interest rates will be (adjusted for projected inflation) over the next few years. The forecasted path of interest rates (shown in turquoise) will still be lower than the neutral rate (the most recent estimate is shown in navy) through 2018. 

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza