Tuesday, July 12, 2011

The Fed is likely to keep the rates low until June 2012

According to the study conducted by the Federal Bank of Cleveland, the 3-percentage-point gap between yields for 3-month and 10-year Treasuries means that American economy may add 1.1% in a year through June 2012 – that is less than half of the Fed’s current forecast.

Taking into account pore June labor market figures, it’s becoming more and more likely that US central bank will keep interest rates extremely low in the current 0-0.25% range. The nation’s borrowing costs remain at these levels since December 2008 and may do so for the longest period since World War II.

In February federal fund futures showed 51% chance of increase. This percentage lowered in April to 39% and is now only at 10%.

The yield on the benchmark 10-year notes declined from 3.77% in February to 3.03% on July 8. Strategists at Barclays note that the 10-year yields staying in the 3% area reflect expectations that US lawmakers will reach an agreement on raising the debt ceiling, though obliging the government to conduct spending cuts that will certainly affect US economic growth in the short term.

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