Interest Rate Cycles: Endings and Beginnings
As expected by the market, the US Federal Reserve lifted the US Fed Funds Rate this week to 1.75%-2.00%. This was the second hike in 2018, and a continuation in a cycle that began in late 2015.
In a post-GFC environment where interest rates are eventually expected to settle at lower levels, it’s natural to ask how far away the US Federal Reserve is to the end of its interest rate cycle.
At the same time, in New Zealand, the Official Cash Rate has been on hold at record lows since the end of 2016, and the focus is on the different issue of when a hiking cycle will eventually begin.
The US Rate Cycle
To address the question for US interest rates, we can compare the US Fed Funds Rates with assumptions for some long run neutral level and market pricing. A simple rule of thumb is that neutral interest rates should be around the sustainable growth rate in nominal GDP (real GDP growth + inflation).Click the button below to subscribe and will have free unlimited access for a limited time to full article and all other articles on the site.
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