Economist Says Cyclical Rise in Rates Now Emerging


The normal cyclical rise in interest rates is now emerging, said the chief economist at BNY Mellon, after being delayed by the financial crisis, recession and the Federal Reserves actions to hold down bond yields.

Richard Hoey said, “We believe that a persistent multi-year upward drift in interest rates is now likely. The aftermath of the three decade-long decline in interest rates is likely to be labeled a secular bond bear market, but we prefer to view it in the context of the cyclical normalization of interest rates that we expect over a half-decade period.

“If we are correct to expect real GDP growth of 3% or more for the next three years, 10-year Treasury bond yields are likely to eventually normalize at about 5% at the end of a half decade-long process of interest rate normalization.

Hoey said there are five stages of monetary policy and that the Fed plans a gradual move from that first stage, being aggressive simulative, to the second stage, simulative, in response to evidence that the economy is in a sustainable expansion.

The other stages going up the scale are neutral, restrictive and aggressively restrictive.

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