Ask a goalgami Expert:Answer

Have a financial question?SUBMIT>


When are interest rates expected to rise again?


Expected to? Rates are rising already and have been for about a year. Take the 10-year Treasury bond, which is the benchmark government instrument used to set rates on many other forms of long-term debt, especially mortgages. The 10-year Treasury yield has nearly doubled in the last year, going from about 1.4 percent to as high as 2.7 percent, as of July 5. Remember when mortgage rates started with a “3”? In the latest week for which the authoritative website had compiled data, the average 30-year mortgage carried a rate of 4.64 percent, up 0.25 percentage points in the course of just one week.

The good news is that these rates are not high by long-term historical standards. It’s just that they had been at all-time lows, the result of a Federal Reserve policy to try to stimulate economic growth, in part by buying Treasury bonds and other long-term debt. Over the last couple of months, the central bank has dropped hints that it would ease back on those purchases, and many investors have decided to jump the gun and sell bonds before the Fed withdraws its support. The Fed’s chairman, Ben Bernanke, then backed off and suggested that the debt purchases were not likely to stop any time soon.

It’s possible that the suddenness of the increase in market rates, which could have an impact on everything from the housing market to consumer spending to the federal deficit, has alarmed Fed officials, prompting the change in message. And they still have not indicated any intention to raise short-term rates, which remain near zero. At this point, the direction of interest rates could hinge on whether market sentiment has shifted to the point that investors are no longer certain that the Fed is on their side or that the Fed really knows what it will or should do.

-Conrad de Aenlle