10-year Treasury rates are heading higher, with the yield curve starting to flatten at around 5% (the 10-year is at 4.65% today, the 2-year is 4.96%). A healthy economy leads to higher interest rates. Also Fed Rate cuts are being seen as more unlikely.
| decade | expected inflation | real interest rate | market yield |
|---|---|---|---|
| 1990s | 3.0 to 3.5 | 2.5 to 4.0 | 5.5 to 7.5 |
| 2000s | 2.2 to 2.6 | 1.4 to 2.2 | 3.6 to 4.8 |
| 2010s | 1.6 to 2.0 | 0.4 to 1.0 | 2.0 to 3.0 |
| now | 2.2 to 2.4 | 1.7 to 2.0 | 3.9 to 4.4 |
=== links ===
What If Fed Rate Hikes Are Actually Sparking US Economic Boom?
A radical theory is spreading as economy defies expectations
‘The reality is people have more money,’ one convert says
"US households receive income on more than $13 trillion of short-term interest-bearing assets, almost triple the $5 trillion in consumer debt, excluding mortgages, that they have to pay interest on. At today’s rates, that translates to a net gain for households of some $400 billion a year, he estimates.
“When rates get below a certain amount, they actually slow down the economy,” Einhorn said on Bloomberg’s Masters in Business podcast in February. He calls the chatter that the Fed needs to start cutting rates to avoid a slowdown “really weird.” “Things are pretty good,” he said. “I don’t think that they’re really going to help anybody” by cutting rates."
“To be clear, the vast bulk of economists and investors still firmly believe in the age-old principle that higher rates choke off growth. As evidence of this, they point to rising delinquencies on credit cards and auto loans and to the fact that job growth, while still robust, has slowed.”
Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
10-Year Real Interest Rate
10-Year Expected Inflation
Our Drunken Sailors Binge despite Higher Interest Rates, and the Fed Watches them Nervously
"Where does this money come from?
A record number of people are employed, and these workers have received big pay increases that outran CPI inflation in 2023 and so far in 2024.
People are getting 5%-plus on their money-market funds and CDs, up from near 0% two years ago.
Mom-and-pop landlords (1-9 rentals) got big rent increases on the 11.2 million single-family houses they rent out.
Stocks have been on cloud 9 over the past 12-plus months.
And some of this income gets spent, and the rest is saved. On top of it, there is a huge wave of immigrants, 6 million in 2022 and 2023 combined, according to the CBO (the Census Bureau’s algo however have not yet picked up on the surge in immigrants in 2022 and 2023), and most of these people are quickly joining the labor market, and they’re starting to make money and are spending it. Immigration has caused the US population to grow by 1.14% in 2023, the fastest growth since 2005. "
https://wolfstreet.com/2024/04/15/our-drunken-sailors-binge-despite-higher-interest-rates-and-the-fed-watches-them-nervously/
