You're watching...
UBS Head of Interest Rate Strategy Chris Ahrens gives his outlook for the Fed.
Also in this playlist...
Auto-advance: ON
Auto-advance
This transcript is automatically generated
The hour but we start with the money cheap money and the veterans are has been keeping in that way and -- to do so until at least and a 2014.
But what if the Fed did start hiking the cost of borrowing raising interest rates short term rates.
Albeit.
But would that force lawmakers to start cutting the over one spending in Washington Chris Ahrens is the head of interest rates.
UBS at.
That's a legitimate question is the -- is -- propping up the government.
Letting them continue to spend recklessly letting them not get our financial house in order and could the Fed put a stop to it.
Well it's it's certainly a legitimate question I mean look -- the Fed was in last year they bought securities.
They're very little there's very fast clip they took down about 600 billion dollars worth of treasuries.
And at that helped the of the government to finance 60% of its borrowing needs.
Now what they're doing is they're extending -- to maturity spectrum and they're forcing down the back end of the yield curve.
The idea there is to keep consumer -- rates low and to push down mortgage rates.
With the intent of trying to recapitalize some activity in the housing sector so that.
The Fed -- -- you know doing two things one it's enabling treasury to borrow it super low rates and -- it's trying to give the consumer helping hand here.
To try to get us housing debacle.
We've seen longer term interest rates market rates relative all over the place in the last couple of weeks they they spike.
And then yesterday fell below that 2% mark on the ten year Chris.
Do you expect that that is what we're gonna see the rest of the year -- specially if we don't get any additional juice from the that.
Well you know we're fighting different things were fighting here the sense that the US economy is starting to recover at a moderate pace that people are starting get employed.
-- -- again and an unsatisfactory pace.
But on the other hand we can't seem to escape through the you know the gravitational pull of events in Europe and and and particularly now.
With Greece is sort of wrapped up from packaged in some sort of -- structuring.
Or at least puts aside for now we're looking at the bigger targets there and that -- in in Spain and Italy resolve.
How much would -- -- term rates have in what would you be looking out on a ten year for those rates to really make a difference to the -- Washington -- it's.
You know I think that have to go up quite significantly from where they are now I think -- have to you know get beyond the four and a half area towards 5%.
And it's not just the level would which rates dipped to its -- wiry it's getting there if rates are getting their because people have.
Lost faith in the value of the currency lost faith in the Central Bank.
If there's an inflationary spike if we start to see foreign investment flows shut down or indeed retreat from US markets.
I think that's that's is important is the absolute level is is what the flows are doing and what the shape of the curve is responding to.
Do you expect any of that to happen in the next couple of years and in the shorter Ryan.
There's a lot that's gonna happen that could impact treasury just by the end of this year whether it's expiration of the bush tax cuts.
Weather was they were the reelection at the automatic spending cuts that take a fact that -- longer run will those scenarios play out short run what happens.
Mean if you call short run the end of the year agreement.
August of 2000 -- for how that scenario out you know the legislative about the ratings impact.
-- rating agencies come back in here and voice their opinion again so that's sort of -- vision you know the near term as you refer to it.
And then out in the longer term again it just depends.
Is the Fed going to be successful -- unwinding this balance sheet without.
You know us -- of much higher inflation if we start to get.
Much higher inflation prints and by that I mean we start the inflation numbers rising for 56%.
Invent things to get a bit disorderly here and we could have a bit of an issue.
This orderly sounds painful Chris thank you so much -- there -- UBS that they had always terrific to see thanks -- -- a.
