Narrow Spread on Rates Suggest Market is Not Buying into Growth

July 23, 2018 Share Print 0

Despite two hikes of the Federal Funds rate this year, ranging between 1.75 percent and 2 percent, long-term rates have not kept pace, causing the yield curve to flatten and stoking fears of a recession.

Just about every time the U.S. Treasurys yield curve has flattened in the past, the U.S. economy has tanked shortly afterwards. Yet Federal Reserve chairman Jerome Powell told Congress that he intends to keep gradually raising interest rates “for now.”

“[Federal Reserve Bank] Chairman Powell is bullish on the economy, but we’re concerned he’s overly bullish on the pace of rate hikes,” said George Rusnak, co-head of global fixed-income strategy at Wells Fargo. He worries that a newly aggressive Fed could hasten a downturn in the currently strong economy. “The market doesn’t think the future growth and inflation are there.”

via CNBC

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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.