Federated writes in its latest "Month in Cash: The Fed's in no rush" that a "Rate hike could come in late summer." Debbie Cunningham says, "Resisting various economic, political and policy crosscurrents, short-term interest rates finished December virtually unchanged from a month earlier. The static nature of the cash-yield curve was unusual given that overnight rates (repos and fed funds) tend to trade lower for liquidity reasons as the year-end approaches, while the brighter economic picture that emerged in recent weeks might have been expected to nudge higher one- to 12-month London interbank offered rates (Libor). Overnight fed funds closed at 18 basis points (compared to just 5 basis points at year-end 2009), one-month Libor was unchanged from a month earlier at 0.261%, three-month Libor finished up half a basis point at 0.303%, and six- and 12 month Libor closed lower by half a basis point at 0.456% and 0.781%, respectively.... Looking ahead, we are prepared to begin shortening weighted average maturities as the date of the first Fed rate hike draws nearer. Yet after having gone to extraordinary lengths to prevent deflation and revive a lackluster economic recovery, the Fed is highly unlikely to call a premature halt to its creative and super-accommodative monetary policies before it sees unambiguous improvement in employment, housing and expectations for future inflation. We expect that such gains will become apparent as the year unfolds, suggesting the FOMC could begin raising interest rates as early as August or September 2011."
