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Credit Insights

Pace of Rising Interest Rates Should Moderate

As the 10-year Treasury approaches 3%, the pace at which interest rates are rising will slow, but the Fed could begin to taper its bond-buying program after its September meeting.

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In May, we opined that as soon the Fed intimated to the markets that it would begin tapering its asset-purchase program, interest rates would rise by 100-150 basis points. In the Federal Open Market Committee's May statement, it added the following new language: "The committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes." This provided the market with its first hint that the FOMC was contemplating reducing its asset-purchase program, precipitating the recent rise in interest rates. 

Later in the month, in response to questioning from the Joint Economic Committee, Federal Reserve chairman Ben Bernanke was more specific, saying the FOMC could begin reducing asset purchases as soon as a few meetings from May. Soon thereafter, the FOMC released the minutes from the April 30-May 1 meetings. These minutes highlighted the fact that a number of members believed the current asset-purchase program should have been decreased as early as the June meeting (with one participant recommending beginning decreasing purchases immediately).

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David Sekera does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.