Interest rates have remained steady for some time now, but for how much longer? In the past few weeks, signs of an impending top in rates have been present.
The Federal Reserve held its benchmark rate steady on Wednesday, choosing not to change the current rate of 0 to 0.25 percent. But the Fed’s decision was not as simple as it may have seemed. The Fed’s statement clarified that while no immediate action was taken, the central bank still believes additional accommodation may be needed in the future.
The stock market responded positively, with the S&P 500 briefly breaking the 4,000 mark for the first time ever, as investors viewed the Fed’s words as a signal that the interest rate will remain low in the near future.
However, some signs point to the possible top in the rate of interest. The yield curve, which measures the difference between short-term and long-term interest rates, is narrowing, indicating investors believe interest rates will top out soon.
At the same time, the yield on the 10-year U.S. Treasury note has risen to 1.68 percent, a level unseen since the beginning of the pandemic. This signals that investors are preparing for rates to rise in the near-term.
Additionally, mortgage rates have been increasing since late January, hitting an average of 3.03 percent for a 30-year fixed mortgage, according to Freddie Mac. This is the highest rate seen in almost a year, suggesting that rates have reached a peak.
These signs of an impending top in rates indicate that investors expect the Fed to start raising rates after the pandemic ends. While the timeline for this change remains uncertain, investors should be cautious in the near-term and prepare for the possibility of higher interest rates.