10-Year Treasury Yield: Is the US Economy Overheating?



Various macro factors

In the previous part, we discussed that Goldman Sachs (GS) thinks that the interest rate hike will move at a faster pace in the economy. The ten-year yield could also move higher by next year.

The rising budget deficit and falling unemployment rate are mainly signaling that the interest rate could move at a faster rate, according to Goldman Sachs. Since the US economy (SPY) is moving at a full employment capacity, many analysts think that the US economy (QQQ) is overheating.

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Commodity prices (DBC) are gradually increasing in the economy. Crude oil’s (USO) price is also moving higher. Stronger commodity prices are boosting the inflation expectations. Higher employment and wage growth are also helping the inflation index. Rising inflation, higher backlog orders since 2004, and rising transportation costs are signaling that the US economy is overheating.

The Fed is continuing its tightening process. The rising yield is signaling that the rate hike could be faster in the economy. In the previous part, we discussed that the ten-year Treasury yield is breaking the seven-year record high. The yield is generally used to decide the cost of money borrowed from the bank.

A faster rate hike could damage the economy. US businesses have enjoyed ultra-low interest rates for nearly a decade. The sudden rise in the interest rates will likely impact their profit margin as borrowing costs increase, which could impact the stock market and the economy.

Read Where Is Warren Buffett Placing His Bets? to learn more.


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