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Can U.S. Interest Rates Ever Rise?

While interest rates have risen from depths that saw the 10-year treasury yielding 1.36% on 7/3/16, to 2.25% today, given Fed plans to tighten and pledge to shrink its balance sheet should rates be even higher?

The Fed will typically engage in the monetary policy of tightening and lift the Fed Funds rate when the two key components of its mandate, full employment and inflation are at its target rate, indicate that it’s warranted to do so.

One could most definitely make the argument that with an unemployment rate of 4.3%, lowest since the 4.4% in October 2006, that employment is in good shape. And while some metrics within the employment report might suggest otherwise, this is a number that the Fed would likely consider as evidence for strong consideration of a tightening stance.

As far as the Fed’s 2% target inflation rate, whether these numbers fit the mandate is slightly less clear as the chart below...


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