Interest Rates: From 0% to Above 5% — to …?

“The lines in the chart will turn up, and no policy will stop it”

By Elliott Wave International

As you’re probably aware, many people who want to borrow to make a major purchase like a house or a car are bemoaning higher interest rates.

It wasn’t so long ago that 3-month T-bill rates were around zero, and at least one prominent figure at the Federal Reserve said rates needed to stay super low for a good while.

Indeed, let’s go back to this June 18, 2021 headline (CNBC):

Fed’s Kashkari opposed to rate hikes at least through 2023

Well, as Elliott Wave International has said time and again, the market determines the trend of bond yields (and interest rates), not the Fed. The Fed merely follows the bond market.

Nearly a month after that Fed official called for a continuation of very low rates, the July 13, 2021 Elliott Wave Theorist offered its own perspective via this chart and commentary (The Elliott Wave Theorist is a monthly publication which provides insights into major financial and social trends):

Rates at Zero, but Not for Long

[The chart] shows that U.S. Treasury bill rates have edged closer and closer to zero …. Nonexistent T-bill yields are due to one thing: historically elevated social mood. … When optimism and complacency finally melt like popsicles in the sun, the lines in [the chart] will turn up, and no policy will stop it.

Fast forward to the just-published August 2023 Elliott Wave Theorist, which provides an update on that July 2021 call with this chart:

As you can see, since our forecast, the 3-month T-bill rates have climbed from around zero to north of 5%. The black arrow points to the juncture at which the July 2021 Theorist made that noteworthy forecast. Mind you, Elliott Wave International was almost alone in making such a call.

Is the rise in interest rates over?

Well, at least one observer says “no.” This Aug. 18 Fox Business caption captures the view of a contributor to a news and opinion website:

[Financial and economics editor]: Interest rates will go higher than Americans think

This is in stark contrast to a recent Reuters poll of economists, the majority of whom say that interest rates have plateaued.

Who’s right?

You may want to check out a chart of bond yields and its Elliott wave structure.

If you’re unfamiliar with Elliott wave analysis, read Frost & Prechter’s Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here’s a quote from the book:

Without Elliott, there appear to be an infinite number of possibilities for market action. What the Wave Principle provides is a means of first limiting the possibilities and then ordering the relative probabilities of possible future market paths. Elliott’s highly specific rules reduce the number of valid alternatives to a minimum.

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