Rising Rates Create Tighter Financial Conditions

by Laura Ehrenberg-Chesler on May 17, 2018

in Fed policy,interest rates

From the WSJ today:

The yield on the 10-year Treasury note climbed to 3.082% on Tuesday, breaking above a 2014 peak to settle at its highest level since 2011. The rise in that benchmark stands to lift borrowing costs for everyone from consumers to corporations.

Meanwhile, the WSJ Dollar Index, a measure of the U.S. currency against 16 peers, climbed to its highest level of the year on Tuesday, reversing a recent decline. A stronger dollar makes it more expensive for foreign governments and companies to repay dollar-denominated debt.

As if that’s not enough, short-term bond yields have been rising, oil and gasoline prices are hovering around multi-year highs, and stocks have been volatile. The S&P 500, which had been on a winning streak of late, finished Tuesday 5.6% below their record highs.

Together, these market moves are starting to restrict the flow of money through the financial system, as The Wall Street Journal’s Morning MoneyBeat newsletter noted on Wednesday. After years of loose monetary policy and calm financial markets, the shift toward tightening financial conditions may act as an additional force restraining economic growth.”

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