Federated's "Month in Cash: Self-sustaining recovery may prompt Fed to act sooner than consensus"
Federated writes in its latest "Month in Cash: Self-sustaining recovery may prompt Fed to act sooner than consensus", "We expect tightening to begin in this year's second half. We believe that a self-sustaining economic expansion -- albeit a modest one by historical standards -- is underway and that the Fed will start to raise interest rates during the second half of 2011. Our forecast differs modestly from the consensus, which clings to the view that a monetary tightening cycle will not begin until next year. It is worth noting that real GDP in the fourth quarter of 2010 finally surpassed its previous peak, attained before the global financial crisis erupted, thus officially ending the recovery stage of the business cycle and heralding the onset of the expansionary phase. At nearly three years, the combined recession and recovery was the longest of the post-World War II era, and partially accounts for the extended period of super-low short-term interest rates that has deeply frustrated savers. Assuming the U.S. economy continues to gain traction as we expect, solid growth and rising inflation data this spring and summer should nudge cash yields higher in anticipation that the Fed will begin normalizing policy rates by the fall or early winter." In other news, see Capital Advisors' latest paper, "Dissecting Prime Money Fund Holdings".
