In the Market: US bond market signals the end of an era
© Reuters. FILE PHOTO: The exterior of the Marriner S. Eccles Federal Reserve Board Building is seen in Washington, D.C., U.S., June 14, 2022. REUTERS/Sarah Silbiger/File Photo
Behind that move is a bet that the disinflationary forces the Federal Reserve fought with its easy money policies in the aftermath of the financial crisis have abated, according to investors and a regularly updated New York Fed model based on yields. This momentous shift in the outlook for rates has profound implications for policy, business and people. While higher interest rates are good news for savers, businesses and consumers have become used to paying nothing for money over the past 15 years. The adjustment to a higher-for-longer rate environment could be painful, manifesting in failed business models and unaffordable homes and cars.
At the same time, the second component of yields in the model -- what the market pricing implies short-term interest rates will be in 10 years -- has also risen rapidly in recent months, reaching around 4.5%. That shows investors believe the Fed funds rate, which is currently in the 5.25%-5.50% range, will not come down much in the coming years.
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