The yield on the benchmark 10-year Treasury note closed up as President Trump reiterated his desire to keep interest rates low. The President’s remarks helped to steepen the yield curve on Friday in an otherwise light trading environment with no market-moving economic headlines. An inverted yield curve is widely considered an ominous sign and is a respected indicator of a potential slowdown of the economy.
The concern over the President’s comments is that with the economy growing at what many believe is near 4% along with a decades low unemployment rate, on-going low interest rates have the potential to overheat the economy and create a surge in inflation. Alternatively, the argument for on-going accommodating interest rate policy by the White House is the belief that low interest rates and a very strong U.S. economy will give the White House the wiggle room needed to navigate tough talks on trade with our primary trading partners. Given that the German 10 Year Bond is nearly 256 basis points lower than our own 10-year Treasury note — one must wonder what will give – lower interest rates in the U.S. or higher interest rates abroad. Also, given the massive debt on our balance sheet, at what point higher interest rates will become a thorn in the side within our economy is also of much interest to economists. All of this makes forecasting where interest rates will settle a tough task.