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Friday's Folly: Why Aren't Interest Rates Falling?

Ever since inflation rates slowed last September 2023, markets anticipated the U.S. central bank would cut interest rates. They inferred that since the Fed did not raise rates since then, it would cut rates.

When inflation rates accelerated, they canceled the March and April cut. Markets pushed the June cut to after September. Firms that buy assets and accumulate debt are faring the worst. REITs are especially sensitive.

Telecom firms erased months of uptrend. AT&T (T), at $16.33, closed at lows not seen since late Nov. 2023. In Canada, higher capital gains taxes will hurt Canadian consumers. They might even cut their spending on mobile and cable services. BCE (BCE), Rogers Communications (RCI), and Telus (TU) are at lows not seen in several years.

Why are Fed members now calling for steady rates all year?

Minneapolis Fed President Neel Kashkari said the Fed needs more confidence that inflation is on the decline. Until that happens, it will not cut rates. Markets speculated that the Fed would cut rates before the U.S. election. That theory is no longer true.

U.S. Treasury Bond ETFs (TLT) traded lower for the month. TLT stock is down by 4.4% while the 7-10 Year Treasury Bond ETF lost 2.33%. The debt market is not bracing for yields surpassing 5% in the coming weeks.