Recently, the benchmark 10-year U.S. Treasury yield dropped below 2%, a situation that caught many economists and investors off-guard. The 10-year yield hovered around 1.98% — its lowest since 2016.
Why were so many analysts so wrong in their interest rate predictions? And can we expect bonds to ever pay a sustainable income to investors?
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Once the economy reaches full employment the Federal Reserve normally raises rates in order to keep inflation in check. Yet inflation has consistently remained at or below the Fed’s target rate of 2% while the economy has kept humming along with sustained low unemployment. This makes it more difficult to know when to cut or raise rates.