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Weekly economic review & outlook Expectations of growth/inflation send longer-term interest rates higher

March 01, 2021

You Need to Know

Week in review

Long-term rates climbing sharply as inflation/growth outlook rises

The 10-year Treasury note yield has climbed to pre-COVID levels on expectations of faster economic growth and higher inflation.

New home sales up at the start of 2021

Demand for new homes remained strong for January with the annualized sales pace of 923,000 units just shy of a 15-year high.

Week Ahead

Forecasts

Both ISMs expected to rise moderately

A combination of stronger economic growth, positive signs from regional Fed/PMI surveys, and falling COVID cases should boost the manufacturing and services ISM surveys.

Job gains should rise, but bad weather will cap the gains

Accelerating economic growth and a sharp drop in COVID cases should allow job growth to pick up for February, but colder and wetter weather may hold down the increases.

While the Federal Reserve has significant, if not perfect, control over short-term interest rates (currently holding them essentially at zero percent), longer-term interest rates are determined by many factors. Specifically, yields for longer-dated Treasury securities depend mainly upon three things: expectations for short-term rates, inflation expectations, and supply/demand for those securities. Clearly the first of these determinants is not putting upward pressure on rates, as the Fed has been adamant that it would not be raising the federal funds rate for some time.

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