US: Further rise in the 10-year rate - Natixis

In view of the analysts at Natixis, in the very next months, the Federal Reserve is not expected to tighten its monetary policy and it is unlikely there will be a hike in the Fed Funds rate before the middle of the year, once the central bank has fathomed out the content of the new administration’s economic policy.

Key Quotes

“On the other hand, the rhetoric could be ratcheted up. Last week, Fed Chair Janet Yellen stated that the Federal Reserve would not fall “behind the curve”, that the Fed Funds rate would be raised preventively. What is clear is that, given the rise in crude oil prices and the stronger wage growth, inflation is set to increase further in coming months. What is less clear is how Donald Trump’s economic policy will affect prices. On the face of things, cutting taxes and upping infrastructure spending should be slightly inflationist. Of course, if Donald Trump succeeds in implementing a rather greater proportion of the measures promised during the campaign (notably customs tariffs and clampdown on immigration), then prices could be set to rise far more sharply. There is therefore the risk that the 10-year rate will increase quite significantly in coming months.”