The Fed is Trapped!

The Fed is trapped! Federal Reserve Chairman Jerome Powell desperately wants to raise (short-term) interest rates to provide a cushion for the 'next time down' but he is afraid to raise rates too quickly lest he pricks the debt and stock market bubbles and leads the US economy into recession. He is also hesitant to boost short-term interest rates faster than the market has already discounted because he will invert the yield curve. Inverted yield curves (when 2 year yields > 10 year yields) ALWAYS signal a recession is not far away. Today, 2 year yields in the US have surged to 2.48%, up from just 0.60% 12 months ago, while 10-year yields have reached 2.96%. The spread between 2 and 10-year yields has narrowed to just 48 basis points. 

 
Screen Shot 2018-05-03 at 07.31.19.png
 

Inflation in the US has started to rise, the labour market is tight, wage costs are increasing and corporate earnings are reaching new highs, yet Powell is still reluctant to raise short-term interest rates. The spread between 2-year and 10-year yields is still narrowing but a glance at the chart above suggests a turn is coming. 

At Secure Investments, I advise individual clients on their pension and non-pension fund investment portfolios. To learn more about my Active Asset Allocator and Gold Trader investment strategies, please get in touch at brian@secureinvestments.ie or 086 821 5911.

If you are reading this via LinkedIn, why not visit Secure Investments and subscribe to get exclusive content for free. No spam, ever. Just great stuff.

Disclaimer

The information contained herein should not be taken as an offer of investment advice or encourage the purchase or sale of of any particular security or investment. It is provided for information purposes only. Secure Investments and its content providers makes no representation or warranty of any kind with respect to the services described, analysis or information obtained arising from use of the pages on this website. Information provided is obtained from sources deemed to be reliable and is provided solely on a best efforts basis. Secure Investments and its content providers do not guarantee the completeness or accuracy of such information and do not accept any liability for any loss or damage arising out of negligence or otherwise as a result of use or reliance on this information, whether authorised or not. The use of the website is at the user's sole risk. Not all recommendations are necessarily suitable for all investors and investment policy must be tailored to suit the circumstances of the individual. We recommend that readers consult their professional adviser before acting on any advice or recommendation on this website. The value of any investment may fall as well as rise and you may not recover the full amount originally invested. Past performance or simulated performance is no guarantee of future investment returns. The value of your investment may be subject to exchange rate fluctuations which may have a positive or adverse effect on the price or income or the securities.