Are We Set For a Reduction in the Fed Target Rate?

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Are We Set For a Reduction in the Fed Target Rate?

Our chart shows the 2-year US Treasury rate over the past 10 years vs. the average 2-year government bond rate across the rest of the G10. In the aftermath of the Global Financial Crisis, the Fed cut interest rates aggressively in order to lift the US economy out of a debt-deflation spiral. It worked and made it possible to start tightening again.

Many other countries did not fare as well and their rates are still low. As can be seen, the gap between the US and the rest of the world was extremely large at the beginning of the year. With the expectation that the Fed will cut rates, this gap could shrink, alleviating the pressure weighing on the US dollar. Actually, reducing this gap could be a motive for the Fed to agree with markets and reduce its target rate.


Unigestion Market Chart 14.06.2019
Source: Unigestion, Bloomberg. Data as at 14 June 2019.



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