Thoughts on the Market: November Edition

Have long-term rates peaked?

As inflation surged in early 2022, central banks around the world began raising interest rates to slow economies and combat higher prices. We will focus on the United States and The Federal Reserve (the ‘Fed’) in this report as the U.S. dollar is the world’s reserve currency, and thus, the Fed’s policy is the most influential on financial markets. The rise in overnight rates (known as the Federal Funds Rate) from essentially nil to 3.78% has been the sharpest in absolute terms in the past twenty years and is even more dramatic when considering the effect of duration* in a low interest rate environment (Figure 1).  Fed Governor Jerome Powell is planning additional increases to bring the rate above 5% in 2023. Read