In recent weeks, the Federal Reserve has provided billions of dollars of liquidity for participants in the market for repurchase agreements, or repos, to stabilize interest rates following a spike in mid-September.
By the end of the first quarter, U.S. economic data began to improve somewhat from what had been winter-related economic weakness. After disappointing results from various sectors of the U.S. economy, higher auto sales, improving business activity, and overall job creation that is generally in line with forecasts have helped shape expectations for a comparatively
In Europe, slow growth appears likely to continue, with some regional differentiation. Signs of strength in the south Spain is doing much better than it had been just 18 months ago, and even Italy looks somewhat healthy now that its political crisis has passed. Importantly, fiscal pressure in the form of austerity programs is slated
Unemployment continues to drop, but not because a lot of new jobs are being created, as many would hope. Instead, the unemployment rate is dropping primarily due to a declining labor participation rate. This remains a cause for concern for us because of what it could mean for inflation. The Fed, under Chairman Ben Bernanke,
In recent posts, we have approached the problem of the outlook for interest rates by outlining the questions that surround the potential growth rate of the U.S. economy. It is established that this rate is heavily influenced by conditions in the labor market. New workers are joining the labor force at a slower pace than
As the Federal Reserve plots its actions and communications strategy for the gradual normalization of monetary policy, fixed-income investors face the challenge of anticipating the future course of interest rates. Economic growth influences interest rates The long-term “equilibrium” interest rate of an economy is intimately linked to the economy’s overall growth potential when it is