The Fed and Interest Rates

by Laura Ehrenberg-Chesler on May 13, 2010

in Bonds,Economic Indicators,Employment,Residential Real Estate

The United States continues to be in a very low interest rate environment.  The Fed Funds rate has been maintained at 0%-.25%.  The 10-year Treasury bond is yielding under 3.6%.  A 30-year fixed mortgage is 5.03%, and a 15-year fixed rate mortgage is 4.30%.

This all begs the question, how long will rates stay this low?  The Fed typically points to inflation as the guide for how and when they will raise or lower rates.

This morning a friend sent me a technical analysis of the various moves in interest rates over the past 20 years.  The charts, and the analysis that accompanied them, suggest that rather than being inflation driven, when the Fed changes their stance on interest rates, it is driven by unemployment and housing instead.

While housing and unemployment ultimately affect the rate of inflation, they will likely give us an earlier signal of any changes to come.

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