So is your neck sore from the whiplash of interest rates or is just mine? After months of interest rates being fairly steady we’ve experienced a lot of volatility recently. So what gives? First lets dispel the headline, Fitch Rating’s downgrade of US debt isn’t responsible for the recent increase in rates. Fitch Ratings is one of the three agencies that rate the credit worthiness of companies and countries. The downgraded the US from AA+ to just AAA citing the recent debt ceiling negotiations. Everyone knows that US debt is the safest debt that is out there so to me this is a whole lot of nothing.

Now for the real reason rates have been increasing I will have to bore you so I apologize in advance. The Treasury department announced that they are going to issue more bonds than was previously expected to cover growing deficits. Economics 101 is that more supply equals less demand so what happens to prices? You guessed it they go up! The second factor is the general confidence in the economy. Going into this year a recession was predicted by the majority of experts, the market was also expecting that as well and was anticipating the Fed would have to cut rates accordingly. As we get further in the year that prediction is growing less and less likely. The jobs report came out today and unemployment fell to 3.5% and while the number of jobs created was slightly below expectation it’s not enough to show any meaningful cracks. As strange as it sounds the better the economy is doing the less likely that rates will come down as the Fed has no incentive to cut rates they and may even raise them again.

So what does this all mean? As I’ve said before I still think we aren’t going to be higher than the rates that we saw back in the fall. We have gotten very close but it’s going to take a lot to get over that level. The inflation report that comes out next Thursday could be that catalyst, as all inflation reports can. Mercifully the Fed doesn’t meet this month so that is one less thing to worry about. For now with the run up we have seen I would expect rates to go back down from here slightly however with new inflation data next week there isn’t much of a breather so expect the roller coaster of interest rates to continue.

Recap:
-Downgrade of US debt by Fitch is a non-factor in recent rise in rates
-More bonds being issued by Treasury is the main cause
-Jobs report came in slightly lower than expectations which helps rates
-Inflation report next Thursday is next key data point
-Next Fed meeting end of September, unclear if they will hike again.