Friday, December 17, 2010

Why are interest rates rising in the US?

When the Federal Reserve announced a second round of quantitative easing (QE2) in early November their goal was to lower long-term interest rates to help further boost the economy.  However, we’ve seen the exact opposite effect in the market.  Interest rates on a wide variety of bonds have been rising over the past month.  Why?  The reason rates have been increasing is because the economy continues to improve, investors now have a greater appetite for risk, the US tax compromise deal working its way through Congress, and because of concern that inflation will increase as a result of QE2.