What a difference a year makes. Last July 4, the expectation was that US interest rates would keep rising as US economic growth kicked into higher gear. Indeed that did happen, until the end of 2018, when tepid corporate earnings and a major market rout spooked investors and probably the Federal Reserve. Fast-forward to this July 4: longer-term interest rates, which are market-driven, have dropped significantly since January. The yield on 10-year US Treasury bonds is now slighty less than 2%, about even with the yield on 3-month Treasury bills.

Long-term rates dropping to a level that matches short-term rates is not the norm for an economy in growth mode. The market consensus now is that the Federal Reserve will start to lower its key short-term interest rate this year, perhaps as early as this month. Can lower interest rates extend the longest US economic expansion in history? That is a key topic in our July 2019 Economic Flash Report, by LNWM’s David Baker, Director, Investment Strategy and Research.