The Federal Reserve has pledged to hold its key lending rate, the fed funds rate, at near zero for an extended period.
- Short-term interest rates remain near zero.
Longer-term Treasury yields, however, have risen.
What’s behind the recent rise in yields? Several factors.
After languishing near the end of last year, the economy is showing tentative signs that growth is beginning to pick up. Economic forecasting is sometimes considered educated guesswork, especially in today’s environment, but there are cautious reasons to be optimistic.
U.S. Gross Domestic Product (GDP) is the largest measure of economic activity.
- It expanded at a record 33.4% annualized pace in Q3 and a slower but still-healthy 4.0% in Q4, per the U.S. BEA.
Most data suggest the economy is still growing, but uncertainty regarding the path of the virus, new variants, and the rollout of the vaccines are keeping economic forecasters off balance.
Yet, there is plenty of money in the economy that could drive growth.
Still-low interest rates, fiscal stimulus and talk of more stimulus, new vaccines, and economic growth have been credited for the stock market’s powerful performance. While they have all played an important role, profit growth is now coming into play.