Rates are goin' up...

Well, barring some kind of crazy economic weirdness, rates are going up in June. Friday's job growth number is almost certainly the final nail in the rates are going up coffin. Now the only question is 1/4 or 1/2 point. I would expect a quarter point bump for the first one and a 1/2 point bump for the second one and then they'll play it by ear.

Something that I want to point out that doesn't get alot of press. The Fed views rates as gas pedals for the economy. Lowering rates is hitting the accelerator and raising rates is slamming on the breaks. They carry this allegory through in almost everything they do and it's very valid and accurate. The common view is that the "neutral" interest rate is somewhere around 3.5-4.25%. That is the rate at which the economy would gravitate to over the long term. With that in mind it's important to realize that rates can rise considerably and we'll still be accelerating the economy. The Fed is not going to rush to above that neutral rate but I would expect a fairly quick progression up to around 3% or so and then .25% bumps every other month or so after that. There's even a school of thought that thinks that the economy will get a 1/4 or 1/8 point warning shot in June and then they'll just bump rates to 2.5% and be done with it for awhile... I think that's a bit extreme but it is certainly possible.

The bottom line for all this is that (largely due to necessity) the Fed has leaned on the accelerator for too long... Corporate America has become complacent and needs a reason to start borrowing now rather then waiting until the recovery is in full bloom. A strong signal from the Fed that they intend to raise rates over the next year should do that nicely...