Electronics

Will interest rates begin to rise?

Will interest rates begin to rise?

Hawks versus doves doesn’t sound like a fair fight. Doves coo and eat seeds. Hawks screech and eat doves. But in the parlance of the bond market, the doves are winning.

To be hawkish in Fed-speak refers to one who supports the idea of higher interest rates. Doves, meantime, are comfortable keeping rates where they are. When the Federal Reserve’s interest rate-setting committee meets for two days in the week ahead it is widely expected not to change rates. That’s one for the doves.

It was only four months ago when the central bank was predicted to be more hawkish and was expected to raise interest rates by one percent over the course of this year. A third of the way through the year and that prediction has been cut in half. Hawks have been roosting while the doves take flight.

In the past week, some in the Federal Reserve have tried to hunt down the doves. The president of the Federal Reserve Bank of Boston Eric Rosengren, who will help decide the fate of the Fed’s key interest rate this coming week, called a gradual increase to rates “absolutely appropriate” and warned that market expectations are too soft. And Rosengren himself has been one of the doves.

Bond investors remain unconvinced the hawks are gathering. The interest rate on the 10-year U.S. Treasury bond isn’t too far off a five-year low. These investors need to listen closely Wednesday when the Fed announces its latest decision to hear if hawks are gathering on the horizon.

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