U.S. interest rates are slowly rising as the Fed raises rates and the global economy gets back on track. For borrowers, rates are still near historic lows even as we near the tenth year of the business cycle. For investors who need investment income, this continues to be a challenging environment.
Long-term interest rates in the U.S. are low but rising. The 10-year U.S. Treasury yield is finally around 3%, a level last reached in 2013. Short-term interest rates, such as the 2-year, have continued to rise steadily as the Fed raises rates.
Taking a longer view, interest rates are still at the tail-end of a 35-year decline. Rates are likely to remain lower this cycle than in the past.
Short run chart
Long run chart
The U.S. Treasury yield curve continues to flatten as long rates rise more slowly than short-term rates. A flatter curve is indicative of a late economic cycle, although it doesn’t necessarily suggest that a recession is imminent.
Additionally, low interest rates around the world have increased the attractiveness of U.S. Treasuries. This places a ceiling on how high interest rates can rise in the short run.
Fed Funds Rate
The Federal Reserve has been raising interest rates slowly but steadily since 2015. Of the Fed’s two mandates, full employment and stable inflation, only the former has unequivocally been on track to achieve long-run targets. However, inflation appears to be accelerating, suggesting that the Fed will continue to tighten monetary policy.
Short Run Chart