Scenarios for increased interest rates
Curious how the ongoing medical crisis and impending recession could lead to higher interest rates - if inflation ever becomes a thing, that could lead to the fed having to make a tough choice, though that seems unlikely with oil prices declining. Also if there is a liquidity crisis of some sort and the fed just runs out of monetary and fiscal stimulus? But don't know how that could play out in lending market - as the 10 yr would still be set to 0% and rates set to libor etc would still be low. Maybe if defaults become so prevalent that lending just freezes up, despite where the fed sets rates?
1) Inflation hasn't been an issue for the last decade.
2) The fed is buying about 1.5 trillion in fix rate securities over the next 3 months to inject liquidity.
We already went through a quantitative easing program so that's still an option on the long term.
Outside of this short term issue with leveraged UST's (which is what the 1.5T is for) there is absolutely no pressure for interest rates to rise as it stands right now.
yeah that's what I figured too, but the reaction to covid has been so unexpected and unprecedented I'm questioning other assumptions.
One scenario - debt spirals out of control > S&P changes rating on tbill > interest rates increase, pandemonium ensues. Rating agencies did downgrade the tbill under Obama, so its not totally impossible.
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