That is lower than when we started the year, when rates were.25%-.375% higher across the board. That’s surprising because the Federal Reserve has been tapering their bond purchases by $10 billion per month since the beginning of the year, that move was expected to drive rates higher.
Why do we think the opposite is taking place? There can be a few reasons. One reason is that many economists including the Fed have scaled back their estimations of what the GDP (Gross Domestic Product) will do. This is a total of all the gross receipts taken in by the domestic economy. A weaker economy is going to keep rates down.
Deflation is also another concern that is not talked about much, but it is on the minds of many. Deflation is also a concern in Europe, where earlier this month the European Central Bank President Mario Draghi made a historic move by charging banks to keep their money at the ECB. This is move by Draghi is aimed at pumping money into the European economy. This is a real concern because it signals that the ECB, like the Fed, does not have a lot of financial power to recharge the economy and is taking any measure within their mandate to do so.
I still believe that rates by year’s end will be above 5% based on the Fed’s ongoing tapering.. Where we end up will be dictated by how the economy performs.
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