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Forbes
30-07-2025
- Business
- Forbes
Interest Rates Are More Complicated Than The Fed And 10-Year Treasury
Man carrying heavy stone with growing interest rate symbol increasing debt. 3D. getty The Wall Street Journal 's editorial board wrote about interest rates this week. They tried to explain that a change by the Federal Reserve in its short-term benchmark federal funds rate on Wednesday wouldn't necessarily improve borrowing costs. They're right to a degree, but the explanation is overly simplified and seems to miss the biggest point: how global markets, not the Fed, are the real force. Interest rates at all levels are always based on fundamental rates with an additional amount for risk. To understand what rates will be, the question is which reference value is in place and how much is added. The Journal noted that expectations are for the part of the Fed that sets rates, the Federal Open Market Committee, to keep the federal funds rate at its current 4.25%–4.5%. What the editorial board called a 'rate-cutting spree' last fall that was 'premature' set off a run-up of yields on the 10-year Treasury Note. The response was unusual; historically, the Treasury yield curve has fallen with the federal funds rate. There was a rebound in unexpected consumer inflation. 'This climb in yields coincided with a rebound in consumer-price inflation that the Fed didn't expect. After flattening through October, the consumer-price index rose 0.3% in November, 0.4% in December, and 0.5% in January. The FOMC hadn't conquered inflation by September as its members had thought. It is good to remember that, at the time, the Journal 's editorial board admonished the Fed: 'The real risk for the Fed is if it embarks on a monetary easing cycle that stops the current disinflation and causes prices to rise again.' It was a risk; they were right. 'That's critical because the rates that matter most to the economy are longer rates, especially the 10-year Treasury,' they wrote. 'Those are rates that most affect corporate borrowing and consumer mortgages.' The Broader View Of Interest Rates The federal funds rate and the yield on the 10-year Treasury Note are both critical to interest rates for commercial and consumer needs. But they aren't the only ones. The federal funds rate range is the set of interest rates that banks charge one another for overnight unsecured loans. The secure overnight financing rate (SOFR) also involves short-term borrowing called repurchase agreements (repo) backed by Treasury securities. SOFR is calculated by ongoing calculations of loan terms, so ultimately controlled by market activity. Put more formally by the Federal Reserve Bank of New York, 'The SOFR is calculated as a volume-weighted median of transaction-level tri-party repo data collected from the Bank of New York Mellon as well as GCF Repo transaction data and data on bilateral Treasury repo transactions cleared through FICC's DVP service, which are obtained from the U.S. Department of the Treasury's Office of Financial Research (OFR).' The New York Fed publishes the SOFR on its website at about 8:00 a.m. Eastern time. SOFR is important as a base for adjustable-rate mortgages, private student loans, home equity lines of credit, and many commercial real estate mortgages. While the Fed has indirect influence on it, SOFR is based on market-driven forces. As for the 10-year Treasury, it is also driven by market forces. The Trump administration has known all along how important the 10-year Treasury is. In February, Treasury Secretary Scott Bessent said in an interview on Fox Business, 'In my talks with [the president], he and I are focused on the 10-year Treasury [yield].' But the administration has tried to convince and nudge the banking industry to invest more in 10-year Treasury Notes. The intent was to increase demand that, in turn, would boost price and push down yields, which move inversely to price. And then there is the 5-year Treasury, which is important to banks that are lending on properties or uses that will likely try to refinance within three to five years, like may commercial real estate businesses. It also follows market forces. Interest Rate Complexities Trying to understand how interest rates work and their potential impact on the economy, companies, and individuals is critical to survive financially. What will happen next is impossible to know. As the Journal wrote of Fed monetary policy moves: 'If short rates fall but long rates rise in anticipation of higher inflation, the economic gain Mr. Trump expects won't occur. What the President needs is a Fed that investors believe favors low inflation and a sound and stable dollar. That will yield lower long-bond and mortgage rates over time.' However, the uncertainty and distrust the administration has created globally is likely a reason the 10-year yield stays up. With tariffs still creating concern about their potential impact on inflation and Trump pushing for faster economic growth (which usually means higher inflation), it also seems unlikely that a broad set of investors will assume low inflation is going to be a direct goal.
Yahoo
20-06-2025
- Business
- Yahoo
Waiting for Mortgage Rates To Drop? That's Just Wishful Thinking
With average weekly mortgage rates near 7%, many potential homebuyers are sitting on the sidelines waiting — and hoping — for rates to come down in the near future. You might be one of them, thinking that if you just hold out a bit longer that 30-year mortgage will be more affordable. Read Next: Find Out: Unfortunately, there's good reason — a lot of them, actually — to think that's not going to happen. Of course, it might help to remember that, historically, today's mortgage rates are not crazy high. They just feel that way because a mere four and five years ago they were less than half what they are now. But anyone who remembers the early 1980s, when rates hit an unimaginable 16.64%, will tell you 7% isn't too bad. Still, lower is better, so let's explore the reasons better mortgage rates might not be on the horizon anytime soon. It's no secret that President Donald Trump and Federal Reserve Chair Jerome Powell have been at odds over the past several months. Trump wants the Fed to lower interest rates. And while it's true that this might have the effect of lowering mortgage rates, it's not a guarantee. In fact, the Fed has no direct effect on mortgage rates, only an indirect one through influencing investor expectations, said Patricia Watson, a professor in the Dr. Wallace E. Boston School of Business at American Public University who focuses on real estate. And as of June 16, CME Group's FedWatch gave the chances of the Fed keeping rates the same in this week's meeting at 99.08%. Not great odds for homebuyers. If you want to see where interest rates might be heading, a better place to check is the 10-year U.S. Treasury Note, said Watson. This is considered a standard for the 30-year fixed-rate mortgage. 'When the yield on the 10-year Treasury note rises, mortgage rates usually follow. In July 2020, the yield for this bond was just under one percent. Now it's just under 4.5 percent, a large increase,' Watson said. So mortgage rates are higher too. In May, Moody's Ratings downgraded the US ratings from Aaa to Aa1. This might not sound like a big deal, but it is. At least in global financial markets and, therefore, in mortgage rates, said Watson. This ties back to the Treasury Notes. Because this signals to the world that lending to the U.S. government — through those Treasury Notes — is considered a bit riskier, investors want higher yields. That drives up the 10-year Treasury Note rate and keeps mortgage rates high, explained Watson. These all feed into an uncertainty about the future of the American economy, and that can keep mortgage rates unchanged, Watson said. For instance, one of the ways the Fed combats inflation is through raising interest rates, making borrowing more expensive and therefore, cooling major purchases. This lowers spending, demand and, ideally, slows inflation. But if inflationary policies, such as tariffs, are implemented, the Fed becomes hesitant to lower rates, especially since lowering rates can itself be inflationary. In a time of economic uncertainty, one thing is certain, said Watson: Don't expect mortgage rates to be as low as they were in 2020 to 2022 for a very long time, if ever in our lifetime. But it's equally true that, while home prices might fluctuate some in the short-term, they go up in the long-term. So, while you might need to more carefully weigh whether you can afford a home, it's still considered by most to be one of the best wealth-building investments you can make. More From GOBankingRates 9 Downsizing Tips for the Middle Class To Save on Monthly Expenses This article originally appeared on Waiting for Mortgage Rates To Drop? That's Just Wishful Thinking Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
19-06-2025
- Business
- Yahoo
Major analyst unveils surprising gold price forecast for 2026
Major analyst unveils surprising gold price forecast for 2026 originally appeared on TheStreet. Increasing economic worry amid a tariff-fueled trade war has caused gold prices to surge this year. So far, gold has rallied 30% in 2025, including a 13% gain over the past three months. Much of the gains follow President Trump's tariff announcements, including on April 2, so-called "Liberation Day."Gold's big returns are particularly impressive compared to other assets, including stocks and bonds. The S&P 500 is up about 2% this year, and the 10-year Treasury Note yield has climbed to 4.41% from below 4% ahead of the new tariffs. The rally in gold has likely caught the attention of many investors, who are wondering if the yellow metal still has room to run. This week, commodities analysts at Citigroup tackled the matter, unveiling a new gold forecast and price target. The U.S. economy is facing its stiffest challenge since 2022, when skyrocketing inflation caused the Fed to pivot from a zero interest rate policy to the most aggressive pace of rate hikes since the 1980s. Inflation has proven stickier than hoped, and job losses are rising and could worsen as tariffs' bite are felt through supply chains in the coming months. Although the White House has paused many reciprocal tariffs announced on Liberation Day, tariffs of 25% remain on Canada, Mexico, and autos. A 10% baseline import tax applies to most other imports. Meanwhile, new China tariffs of 30% have increased total tariffs above 50% on everything from clothing to car has increased to 4.2% from 3.4% in 2023, and layoffs year-to-date exceed 696,000, according to Challenger, Gray & Christmas, up 80% year-over-year through May. Meanwhile, inflation has made little progress since last fall. In May, the Consumer Price Index showed inflation up 2.4% from one year ago, unchanged from September. Inflation's stalled decline and job market cracks have trapped the Federal Reserve in a box, trapped by its mandate. The Fed's mission is to maintain low employment and inflation, two often competing and contradictory goals. Raising rates lowers inflation but increases joblessness, while lowering rates increases inflation but boosts employment. Toss into the mix the uncertainty associated with tariffs' impact on inflation this year, and it's not hard to understand why the Fed is stuck on the sidelines, unwilling to risk fanning inflationary flames by cutting rates even as economic data disappoints. More Economic Analysis: Federal Reserve prepares strong message on long-term interest rates Massive city workers union approves strike Analyst makes bold call on stocks, bonds, and gold ISM's manufacturing index was 48.5 in May, down from 50.9 in January. Its services index fell to 49.9 from 54 in December. Historically, readings below 50 signal a contracting economy. If that wasn't enough of a concerning backdrop supporting gold, there's more. The U.S. deficit is projected to be near $2 trillion in 2025, and mounting U.S. debt has left many wondering if Treasury bond obligations will someday need to be renegotiated, making them less appealing than normal. And let's not forget chaos in the Middle East. Israel's attack on Iran and Iran's response have fueled additional uncertainty, sending crude oil prices higher — yet another inflationary threat. This month, West Texas Intermediate crude prices have surged by 18% to $73.67. Gold's price surge to over $3,400 has lifted it to all-time highs, which may signal that speculators have become overly bullish and complacent. The risk that gold bugs have become too optimistic isn't lost on Citigroup, whose commodities analysts released a new gold price outlook this week. The analysts' latest take on gold is anything but glittering. Citi says gold demand may weaken as we move beyond summer and stretch into next year, potentially leading to a drop in gold prices to between $2,500 and $2,700 by the end of 2026. Fewer shocks driving gold interest and improving optimism over the economy ahead of midterm elections and following new tax cuts, including tax relief for social security recipients, would contribute to the drop in demand. Easing economic tensions could also help Treasury bonds chip away at gold's lead, with gold being worth $200 per ounce less for every 1% decline in interest rates. Citi's baseline near-term and six- to 12-month gold price targets are $3,300 per ounce and $2,800 per ounce, down from $3,500 and $3,000 previously. It expects a range of between $3,100 and $3,500 in the third quarter, leaving little upside reward for new gold analyst unveils surprising gold price forecast for 2026 first appeared on TheStreet on Jun 17, 2025 This story was originally reported by TheStreet on Jun 17, 2025, where it first appeared. Sign in to access your portfolio
Miami Herald
17-06-2025
- Business
- Miami Herald
Major analyst unveils surprising gold price forecast for 2026
Increasing economic worry amid a tariff-fueled trade war has caused gold prices to surge this year. So far, gold has rallied 30% in 2025, including a 13% gain over the past three months. Much of the gains follow President Trump's tariff announcements, including on April 2, so-called 'Liberation Day'. Related: Bank of America unveils surprising Fed interest rate forecast for 2026 Gold's big returns are particularly impressive compared to other assets, including stocks and bonds. The S&P 500 is up about 2% this year, and the 10-year Treasury Note yield has climbed to 4.41% from below 4% ahead of the new tariffs. The rally in gold has likely caught the attention of many investors, who are wondering if the yellow metal still has room to run. This week, commodities analysts at Citigroup tackled the matter, unveiling a new gold forecast and price target. The U.S. economy is facing its stiffest challenge since 2022, when skyrocketing inflation caused the Fed to pivot from a zero interest rate policy to the most aggressive pace of rate hikes since the 1980s. Inflation has proven stickier than hoped, and job losses are rising and could worsen as tariffs bite are felt through supply chains in the coming months. Although the White House has paused many reciprocal tariffs announced on Liberation Day, tariffs of 25% remain on Canada, Mexico, and autos. A 10% baseline import tax applies to most other imports. Meanwhile, new China tariffs of 30% have increased total tariffs above 50% on everything from clothing to car parts. Related: Veteran fund manager sends dire message on stocks Unemployment has increased to 4.2% from 3.4% in 2023, and layoffs year-to-date exceed 696,000, according to Challenger, Gray & Christmas, up 80% year-over-year through May. Meanwhile, inflation has made little progress since last fall. In May, the Consumer Price Index showed inflation up 2.4% from one year ago, unchanged from September. Inflation's stalled decline and job market cracks have trapped the Federal Reserve in a box, trapped by its mandate. The Fed's mission is to maintain low employment and inflation, two often competing and contradictory goals. Raising rates lowers inflation but increases joblessness, while lowering rates increases inflation but boosts employment. Toss into the mix the uncertainty associated with tariffs' impact on inflation this year, and it's not hard to understand why the Fed is stuck on the sidelines, unwilling to risk fanning inflationary flames by cutting rates even as economic data disappoints. More Economic Analysis: Federal Reserve prepares strong message on long-term interest ratesMassive city workers union approves strikeAnalyst makes bold call on stocks, bonds, and gold ISM's manufacturing index was 48.5 in May, down from 50.9 in January. Its services index fell to 49.9 from 54 in December. Historically, readings below 50 signal a contracting economy. If that wasn't enough of a concerning backdrop supporting gold, there's more. The US deficit is projected to be near $2 trillion in 2025, and mounting US debt has left many wondering if Treasury bond obligations will someday need to be renegotiated, making them less appealing than normal. And let's not forget chaos in the Middle East. Israel's attack on Iran and Iran's response have fueled additional uncertainty, sending crude oil prices higher-- yet another inflationary threat. This month, West Texas Intermediate crude prices have surged by 18% to $73.67. Gold's price surge to over $3,400 has lifted it to all-time highs, which may signal that speculators have become overly bullish and complacent. The risk that gold bugs have become too optimistic isn't lost on Citigroup, whose commodities analysts released a new gold price outlook this week. The analysts' latest take on gold is anything but glittering. Citi says gold demand may weaken as we move beyond summer and stretch into next year, potentially leading to a drop in gold prices to between $2500 and $2700 by the end of 2026. Fewer shocks driving gold interest and improving optimism over the economy ahead of midterm elections and following new tax cuts, including tax relief for social security recipients, would contribute to the drop in demand. Easing economic tensions could also help Treasury bonds chip away at gold's lead, with gold being worth $200 per ounce less for every 1% decline in interest rates. Citi's baseline near-term and six- to 12-month gold price targets are $3,300 per ounce and $2,800 per ounce, down from $3,500 and $3,000 previously. It expects a range of between $3,100 and $3,500 in the third quarter, leaving little upside reward for new gold investors. Related: Analyst makes bold call on stocks, bonds, and gold The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
01-06-2025
- Business
Can Trump fix the national debt? Republican senators, many investors and even Elon Musk have doubts
WASHINGTON -- President Donald Trump faces the challenge of convincing Republican senators, global investors, voters and even Elon Musk that he won't bury the federal government in debt with his multitrillion-dollar tax breaks package. The response so far from financial markets has been skeptical as Trump seems unable to trim deficits as promised. 'All of this rhetoric about cutting trillions of dollars of spending has come to nothing — and the tax bill codifies that,' said Michael Strain, director of economic policy studies at the American Enterprise Institute, a right-leaning think tank. 'There is a level of concern about the competence of Congress and this administration and that makes adding a whole bunch of money to the deficit riskier.' The White House has viciously lashed out at anyone who has voiced concern about the debt snowballing under Trump, even though it did exactly that in his first term after his 2017 tax cuts. White House press secretary Karoline Leavitt opened her briefing Thursday by saying she wanted 'to debunk some false claims" about his tax cuts. Leavitt said that the "blatantly wrong claim that the 'One, Big, Beautiful Bill' increases the deficit is based on the Congressional Budget Office and other scorekeepers who use shoddy assumptions and have historically been terrible at forecasting across Democrat and Republican administrations alike.' But Trump himself has suggested that the lack of sufficient spending cuts to offset his tax reductions came out of the need to hold the Republican congressional coalition together. 'We have to get a lot of votes,' Trump said last week. 'We can't be cutting.' That has left the administration betting on the hope that economic growth can do the trick, a belief that few outside of Trump's orbit think is viable. Tech billionaire Musk, who was until recently part of Trump's inner sanctum as the leader of the Department of Government Efficiency, told CBS News: 'I was disappointed to see the massive spending bill, frankly, which increases the budget deficit, not just decreases it, and undermines the work that the DOGE team is doing." The tax and spending cuts that passed the House last month would add more than $5 trillion to the national debt in the coming decade if all of them are allowed to continue, according to the Committee for a Responsible Financial Budget, a fiscal watchdog group. To make the bill's price tag appear lower, various parts of the legislation are set to expire. This same tactic was used with Trump's 2017 tax cuts and it set up this year's dilemma, in which many of the tax cuts in that earlier package will sunset next year unless Congress renews them. But the debt is a much bigger problem now than it was eight years ago. Investors are demanding the government pay a higher premium to keep borrowing as the total debt has crossed $36.1 trillion. The interest rate on a 10-year Treasury Note is around 4.5%, up dramatically from the roughly 2.5% rate being charged when the 2017 tax cuts became law. The White House Council of Economic Advisers argues that its policies will unleash so much rapid growth that the annual budget deficits will shrink in size relative to the overall economy, putting the U.S. government on a fiscally sustainable path. The council argues the economy would expand over the next four years at an annual average of about 3.2%, instead of the Congressional Budget Office's expected 1.9%, and as many as 7.4 million jobs would be created or saved. Council chair Stephen Miran told reporters that when that growth is coupled with expected revenues from tariffs, the expected budget deficits will fall. The tax cuts will increase the supply of money for investment, the supply of workers and the supply of domestically produced goods — all of which, by Miran's logic, would cause faster growth without creating new inflationary pressures. 'I do want to assure everyone that the deficit is a very significant concern for this administration,' Miran told reporters recently. White House budget director Russell Vought told reporters the idea that the bill is 'in any way harmful to debt and deficits is fundamentally untrue.' Most outside economists expect additional debt would keep interest rates higher and slow overall economic growth as the cost of borrowing for homes, cars, businesses and even college educations would increase. 'This just adds to the problem future policymakers are going to face,' said Brendan Duke, a former Biden administration aide now at the Center on Budget and Policy Priorities, a liberal think tank. Duke said that with the tax cuts in the bill set to expire in 2028, lawmakers would be 'dealing with Social Security, Medicare and expiring tax cuts at the same time.' Kent Smetters, faculty director of the Penn Wharton Budget Model, said the growth projections from Trump's economic team are 'a work of fiction.' He said the bill would lead some workers to choose to work fewer hours in order to qualify for Medicaid. 'I don't know of any serious forecaster that has meaningfully raised their growth forecast because of this legislation,' said Harvard University professor Jason Furman, who was the Council of Economic Advisers chair under the Obama administration. 'These are mostly not growth- and competitiveness-oriented tax cuts. And, in fact, the higher long-term interest rates will go the other way and hurt growth.' The White House's inability so far to calm deficit concerns is stirring up political blowback for Trump as the tax and spending cuts approved by the House now move to the Senate. Republican Sens. Ron Johnson of Wisconsin and Rand Paul of Kentucky have both expressed concerns about the likely deficit increases, with Johnson saying there are enough senators to stall the bill until deficits are addressed. 'I think we have enough to stop the process until the president gets serious about the spending reduction and reducing the deficit,' Johnson said on CNN. The White House is also banking that tariff revenues will help cover the additional deficits, even though recent court rulings cast doubt on the legitimacy of Trump declaring an economic emergency to impose sweeping taxes on imports. When Trump announced his near-universal tariffs in April, he specifically said his policies would generate enough new revenues to start paying down the national debt. His comments dovetailed with remarks by aides, including Treasury Secretary Scott Bessent, that yearly budget deficits could be more than halved. 'It's our turn to prosper and in so doing, use trillions and trillions of dollars to reduce our taxes and pay down our national debt, and it'll all happen very quickly,' Trump said two months ago as he talked up his import taxes and encouraged lawmakers to pass the separate tax and spending cuts. The Trump administration is correct that growth can help reduce deficit pressures, but it's not enough on its own to accomplish the task, according to new research by economists Douglas Elmendorf, Glenn Hubbard and Zachary Liscow. Ernie Tedeschi, director of economics at the Budget Lab at Yale University, said additional 'growth doesn't even get us close to where we need to be.' The government would need $10 trillion of deficit reduction over the next 10 years just to stabilize the debt, Tedeschi said. And even though the White House says the tax cuts would add to growth, most of the cost goes to preserve existing tax breaks, so that's unlikely to boost the economy meaningfully. 'It's treading water,' Tedeschi said.
