Neutral interest rate expectations in the US

While neutral interest rate expectations are prominent in the US, it is also evaluated that the level of interest rates may prevent the rise in bond markets. While signs of cooling are beginning to be seen in the inflation and employment markets in the US, bonds are also close to erasing the losses they have experienced since the beginning of the year. Market players are taking a position that the incoming data will be enough for the Fed to start lowering interest rates as early as September. However, the increasing views that the neutral interest rate, known as the rate that neither encourages nor slows down economic growth in the US, is higher than the Fed's forecast emerge as a development that could make interest rate cuts difficult and extinguish hopes for an increase in bonds. Futures contracts, which reference the five-year interest rate over the next five years and are an indicator of the market's view of where US interest rates may go, indicate a rate of 3.6 percent. Although this rate is lower than last year's peak of 4.5 percent, it is higher than the average of the last decade and the Fed's own estimate of 2.75 percent. SMBC Nikko Securities America Inc. “This is important because when the economy inevitably slows down, there will be fewer rate cuts and interest rates could be higher over the next decade than they have been over the last decade,” said Troy Ludtka, senior U.S. economist. “We’ve only seen a very gradual slowdown in economic growth, and that suggests the neutral rate is meaningfully higher,” said Bob Elliott, CEO of Unlimited Funds Inc.