Special Report: Top 3 Risks to Interest Rates in 2022 – Will interest rates go up or down this year?
1 INFLATION
Bonds across the world are trading at negative yields relative to inflation. For example, if a bond investor is earning 2% and the inflation rate is 5%, the investor is losing 3%. At some point, it seems likely that bond investors may demand higher yields in order to account for higher inflation. This could drive up interest rates.
2 THE FEDERAL RESERVE
The Fed has injected an eye-popping $4.516 TRILLION into the economy since March of 2020 by buying Treasury bonds and mortgage bonds. This caused interest rates to go down to record levels. What will happen when the Fed stops buying bonds this year? Many economists are anticipating that interest rates may go up when the Fed scales back its massive bond-buying program.
3 GOOD NEWS vs. BAD NEWS
When bad news hits the economy, investors flock to the bond market for safety, driving down interest rates. When good news hits the economy, investors shift their bias toward stocks and away from bonds, causing interest rates to go up. Many economists are anticipating that the economy will remain strong in 2022. Interest rates may go up as a result.
NUMBER OF THE WEEK
$4.516 Trillion
That’s how much the Fed has injected into the economy since March 2020.
(What will happen when the market gets weaned off the Fed’s stimulus in 2022?)
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Source: Momentifi
Kevin Brierton
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