Interest Rate the Fed seems faster growth? Speculation or reality?

7 Jun 2021 Written by: Redaksi OCBC NISP

The US economy following predictions has shown a very significant improvement.

This can be seen from several releases of US economic data, especially US inflation and employment data. US core inflation data was released to increase significantly by 3.1% for April 2021 and was above market participants' estimates at the level of 2.9%. In addition, data on US consumer spending grew by 0.5% and claims for the US unemployment rate again declined to the level of 406 thousand. In addition, the infrastructure stimulus agenda as well as tax increases for the upper class in the US are also expected to help the current economic recovery process.

Thus, market participants' concerns have increased because of the possibility that the Fed will increase its benchmark interest rate more quickly, which will increase the yield of US Government bonds or US Treasury which is currently at the level of 1.61%. In addition, the plan to increase interest rates more quickly creates the potential for greater USD strengthening against other currencies.

Investment Strategy:

The significant improvement in the US economy will certainly increase market participants' speculation that the Fed will raise its benchmark interest rate more quickly. If so, the USD will strengthen again and yields on US Treasury bonds will increase causing pressure, which will have a negative impact on the global bond market as well as Indonesian bonds. In the medium to long term, rising inflation is the impact of accelerating economic recovery, so that pressure on the bond market is more temporary. So, if the customer has a longer investment period, there is no harm in taking advantage of the current situation to accumulate when prices are weakening.

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