Principal Investors Sees Another Fed Rate Hike This Year

The transcript discusses the Federal Reserve's approach to managing its balance sheet, emphasizing a non-aggressive strategy that avoids destabilizing the bond market. It highlights the Fed's decision to raise interest rates by 25 basis points, not due to inflation, which is low, but to support economic health through modest capital costs. The discussion also covers how a hawkish Fed might prompt investors to act before rates rise, though many loans are tied to the 10-year bond, affecting mortgage rates. Finally, the transcript notes that higher US short-term rates could attract international capital, strengthening the dollar.

What is the Federal Reserve's approach to managing the balance sheet?

• Aggressively selling bonds

• Allowing it to run off without selling bonds

• Reducing interest rates

• Increasing bond purchases

Why did the Federal Reserve decide to increase the Fed funds rate by 25 basis points?

• Due to high inflation

• To counteract deflationary forces

• Because of wage growth and capacity constraints

• To stabilize the bond market

What is the expected impact of a hawkish Federal Reserve on borrowing?

• It will have no impact on borrowing

• It will increase interest rates significantly

• It will make borrowers want to move quicker

• It will decrease borrowing

How does the 10-year bond influence the US mortgage rate?

• It only affects short-term rates

• It is unrelated to mortgage rates

• It directly drives the mortgage rate

• It has no influence

What is the likely effect of higher US short-term rates on international capital investment?

• It will have no effect

• It will lead to capital outflow

• It will make the US a favored destination for capital

• It will deter international investment