Janet Yellen Says Rates Will Be Higher For Longer

It’s “unlikely” that market interest rates will return to levels before the pandemic, US Treasury Secretary Janet Yellen said to reporters yesterday in comments that were published by Bloomberg.

A reporter asked Yellen why the White House projections that were part of President Joe Biden’s $7.3 trillion fiscal 2025 budget proposal showed higher expectations for interest rates in coming years compared with projections a year ago. Yellen said the new numbers were in line with private sector forecasts.

“I think it reflects current market realities and the forecasts that we’re seeing in the private sector — that it seems unlikely that yields are going to go back to being as low as they were before the pandemic,” she said.

The budget proposal now assumes that the rates on three-month US Treasury bills will average 5.1% this year, up from the 3.8% projected last March. The projection for the 10-year yield is now 4.4%, up from 3.6%.

Meanwhile, some economists are beginning to think that it will be a long time for the Fed to reach its goal of 2% inflation and that 3% will be the new normal.

“Inflation was able to decelerate from 9% to 3% rather quickly, but the path to the Fed’s 2% target may take more time than expected,” Skyler Weinand, CIO of Regan Capital, told Axios.

Last week, the Labor Department reported that the Consumer Price Index grew 3.2%year over year.

Lara Rhame, chief U.S. economist at FS Investments, also believes that inflation will hover at 3% for the foreseeable future.

The Fed is “going to err on the side of caution in terms of cutting too quickly,” Rhame said to Axios.

 

Source:  GlobeSt.