Bond Dealers Expect Fed to Keep Rates Low Even After December Hike

The Federal Reserve is widely expected to raise interest rates next month, a move that some worry would make it harder for the central bank to achieve its goal of 2 percent inflation.

Wall Street says worry not: A newly released survey of the nation’s biggest bond dealers suggests Fed policy will be easy for years, even after a series of rate hikes.

The results show that primary dealers believe the neutral rate—the borrowing cost, adjusted for inflation, that keeps the economy at full employment with stable prices—is currently around zero, and will rise more or less in a straight line to 1.5 percent by the end of 2018. Compare that with the Fed’s own projections of where interest rates will be (adjusted for projected inflation) over the next few years. The forecasted path of interest rates (shown in turquoise) will still be lower than the neutral rate (the most recent estimate is shown in navy) through 2018. 

via Bloomberg

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