The Fed, U.S. Economy and Interest Rates


  • Yields on 10-year U.S. Treasury’s broke through the magical 3.0% threshold, up from 2.41% at the end of 2017.
  • While that is noteworthy, the real story has been the rise in the front end of the curve.
  • Yields on 2-year Notes reached 2.48% at the end of April, up from 1.88% at the end of December.  With that, the on-again-off-again relationship with inflation was back on.
  • San Francisco Federal Reserve President John Williams said, “I expect that we actually will see inflation not only reach but slightly exceed our longer-run 2% goal for the next few years.” Data were supportive of this view.
  • Oil reached prices not seen since 2014 and steel and aluminum prices were also up significantly in advance of proposed U.S. tariffs, and gasoline is moving higher as well.
  • Headline inflation, as measured by the consumer price index (CPI), now sits at 2.4% and core CPI has climbed to 2.1%.
  • Annualized real GDP rose 2.3% in the first quarter, better than the consensus forecast of 2.0%, but down from the 2.9% in the fourth quarter.  In spite of the slip, the trajectory of growth in the U.S. seems to be gaining speed.

Source: Federal Reserve, Janus Henderson Investors, Bloomberg, JP Morgan, FactSet