Several weeks ago we wrote that the path of least resistance for Treasury yields was higher. The main reason for the increase in yield is the realization that we are in a new inflation regime, which itself is being driven by faster economic growth, ongoing supply-side frictions, rising debt, demographics, climate change, and geopolitical tensions, none of which were issues in the 2000-2020 period. In this Economics Weekly, Richard de Chazal takes another look at interest rates, examining how high rates are likely to go in the current cycle relative to past Fed tightening cycles; we also explain why 10-year yields are more likely to remain anchored around today’s higher levels of 5.0%-5.25% than fall back sustainably toward the lows of the pre-pandemic years.
