Shelter Six: Fed’s Commitment to Buying Bonds Should Keep Rates Low

January 18, 2021 by · Leave a Comment 

Investors are clearly very optimistic that government stimulus and vaccines are going to lead to a fast economic recovery.

December Retail Sales fell a disappointing.7% from November. Retail Sales plunged after the pandemic, then rallied for two months, but have been more-or-less flat since.

Recent upward pressure on rates stems from the new bonds that will need to be issued to fund government stimulus, which is believed will cause inflation to rise.

There was evidence last week that inflation is not an issue yet, however, as December’s Core Consumer Price Index was just 1.6% higher than a year ago and unchanged from November.

The Fed clarified last week that it does not plan to slow down its level of bond buying until employment is stronger and inflation is rising at a more substantial level.

The Fed’s commitment to buying bonds should keep rates down around 3% for some time.

Rate Update

Despite growing market volatility and headlines that rates are rising, rates were actually unchanged last week.

This Week

Housing Starts will be released on Thursday and Existing Home Sales on Friday.