Zero-bound money – quality aside – lowers incentives to expand loans and create credit growth. Will Rogers once humorously said in the Depression that he was more concerned about the return of his money than the return on his money.
This spread spiked higher on release of the Fed’s ‘dot plot’ when the yield guesses by FOMC participants jumped for year-end 2015 and 2016. Specifically, the median forecasts for 2015 and 2016 were 1.38% and 2.88% respectively.
fixed income investors are warming to the Fed’s message that inflation will remain low, but they are having a hard time believing what the central bank has to say about the tenure of easy monetary policy beyond the end of its asset purchase program.