There were two Bloomberg stories over the past few days on the Fed and short-term interest rates. I thought I would cut and paste a few salient quotes to give an idea of why we believe short-term rates (Fed Funds, the Discount Rate and 3mos Libor) are not going up for 2-4 years:
“If you say ‘I’m going to commit to keeping rates at zero for three years’ but the market doesn’t believe you, then you could just buy up three-year notes until they do,” said Michael Feroli, the chief U.S. economist at JPMorgan Chase & Co. “It’s a way of backing up their words with deeds.”
“The target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after” unemployment falls below the 6.5 percent threshold, Bernanke said.
From futures to derivatives, traders don’t see the central bank raising its benchmark interest rate from a record low until nine months after policy makers end their monthly bond purchases of $85 billion, or late 2015.
The Fed’s assertion that the tapering of its quantitative easing doesn’t mean a tightening of monetary policy is starting to sink in among bond traders. That may help contain yields, supporting borrowers of all types that have refinanced trillions of dollars of debt because of the Fed’s policies.
Our Read - short rates are not going up for 2-4yrs. How do leverage loans "float" if 3mos Libor doesn't rise over the next 2-4yrs? Where is the floating rate aspect?