Market Analysts Respond to the Treasury Secretary's Comments on Rising Rates

This week, Treasury Secretary Janet Yellen said interest rates may potentially increase to meet the economic growth, which may have spooked some investors. Market analysts shared their thoughts on rising interest rates with CNBC, largely agreeing that a rise in rates is inevitable. Market Rebellion Founder Jon Najarian and BlackRock Chief Investment Officer Rick Rieder say Yellen’s comments send a message to the Federal Reserve that it should start thinking about the potential. Rieder says rates are in a negative territory and the continuation of low rates might make it harder in the long run.

“Where are we, negative 88 basis points in 10-year real rates? Listen, that’s not the right level. You’ve got an economy that is growing and it could be well into the high 7s [for] GDP this year and every client call I’m on ... is talking about overheating. Everybody’s talking about overheating. Listen, I think the Fed is right [that] most of these costs are transitory and I think most are. When you have a reopening like this, when you have the bid for copper and lumber and energy, you’re going to get some extraordinary numbers. And inventory levels have been drawn down across everything, from houses to autos to anything retail. So, you get a pop. And I think most of that is a near-term impact. However, the longer that policy stays this easy, as long as the liquidity in the system is excessive, then you run the risk that you overheat or you run the risk that things, after the exit from this policy, maybe it may have to be a bit more aggressive.”

Barry Bannister, chief equity strategist at Stifel, said Yellen was simply stating the obvious:

“May-October is typically weaker than November to April, and there’s a ‘buy the rumor, sell the fact’ aspect to earnings. We know the earnings were great and the market saw that. That’s why it ran up November to April, 27%. But then again, buy the rumor, sell the fact. Yellen’s comments didn’t help, but the Fed’s been skating very close to the edge of the ice. They need to assert at some point that they have independence and Yellen was sort of lobbing the ball in a lateral to Powell by taking some of the heat by saying what’s obvious, which is that eventually, if things really pick up, the Fed has to tighten.”

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