The Federal Reserve’s vow to bring inflation down to its target 2% annual rate means investors should brace for the central bank’s policy rate to peak around 5% in June, but to stay near a 2.5% “equilibrium rate” for some time, according to Torsten Slok, chief economist at Apollo Global Management.The Federal Reserve’s vow to bring inflation down to its target 2% annual rate means investors should brace for the central bank’s policy rate to peak around 5% in June, but to stay near a 2.
He said a 2.5% equilibrium interest rate, “which keeps the economy at full employment and inflation at 2%” has implications for investors as it resets higher, including “a wide range of consequences for corporate America and financial markets,” in a Friday client note. Higher borrowing costs can cut into corporate profits and impact credit spreads, or the level of compensation bond investors demand above a risk-free benchmark to act as creditors to counties, municipalities, businesses and even the U.S. mortgage market.
The state of the economy would need to be so bad, for them to go back to zero rates, that it most certainly shouldn't be something anyone would hope for.
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Source: CNBC - 🏆 12. / 72 Read more »