NEW YORK (Reuters) - Federal Reserve policymakers will soon stop boosting U.S. interest rates out of caution that America’s long economic expansion will be stifled, according to RBC U.S. Wealth Management fixed-income strategist Craig Bishop.
Bishop, interviewed in the Reuters Global Markets Forum online chat room, discounted official Fed projections showing possible increases in the Fed Funds rate through 2020. Policymakers now see current levels as nearly neutral, after a decade of cheaply priced money aimed at battling the Great Recession, he said.
Here are excerpts from the chat:
Question: Are we near a yield curve inversion, when longer-term rates are lower than short ones, that often signals a recession is coming?
Answer: That possibility is very good and will very much depend upon how aggressive the Fed wants to be in hiking; at this point, we’re just a couple of hikes away from an inverted curve. We do believe in the predictive powers of the curve .... But we don’t think the Fed will purposely invert the curve.
Q: Do you see the Fed stopping hikes after next month’s widely expect increase?
A: We believe the Fed is much closer to the end of the tightening cycle than the halfway point, as the (Fed projections) suggest. As such, neutral rate discussions could play an important role guiding policy past September, where we agree that the Fed will hike.
Q: What will interest rates do over the next few years, in your scenario?
A: With our view for fewer rate hikes, and the current shape of the curve, we tend to think we may be seeing a repeat of the late 1990s, (when) the curve remained flat and the Fed paused for a few years.
Q: With U.S. Treasury sales of new bonds steadily increasing, is there any chance the 10-year yield will go above 3.25 percent?
A: Not in the near future. ... We believe the high for the year is in. Increased auction size has been a noisy issue for most of the year; yet each auction, for the most part, has not been an issue. I think this will continue to be the case.
((This interview was conducted in the Reuters Global Markets Forum, a chat room hosted on the Eikon platform.))
Reporting By Michael Connor and Richard Leong in New York; Editing by Richard Chang