Salient to Investors:
James Hamilton at the University of California said interest rates are climbing as asset purchases help bolster confidence in economic growth. Hamilton said the economy picking up puts upward pressure on yields regardless of what the Fed is doing on the bond supply side, pleasing the Fed.
Jonathan Wright at Johns Hopkins said QE3 held mortgage rates 20 basis points to 40 basis points lower than they otherwise would be, as signs of economic strength have obscured those benefits by nudging interest rates higher. Wright said QE marginally improves the economy, driving rates back up, though the current round of asset purchases lacks the clout of the prior two programs.
Mark Gertler at NYU said rising stock prices and inflation expectations suggest the Fed’s asset purchases are fueling the expansion.
Paul Dales at Capital Economics said rising stock prices may boost consumption through the wealth effect, while increasing inflation expectations will stoke borrowing by reducing implied real interest rates.
Kansas City Fed President Esther George worries that continued high monetary accommodation increases the risks of future economic and financial imbalances, and an increase in long-term inflation expectations.
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