AEGIS Factor Matrices: Most important variables affecting interest rates

Slow Growth – Formerly COVID-19, this changed factor focuses more on the economic impact of the remaining pandemic and its variants as opposed to a more general overall negative effect. But note, the coronavirus still plays a role in both this factor and the Unemployment factor, which has been left unchanged as a large reason to maintain lower interest rates by the Federal Reserve.

Tapering – This factor has become more priced into rates, particularly medium-term and long-term rates, as well as a larger factor as the market is clearly pricing in tapering to be announced in November and begin as early as by the end of 2021 if not 1Q 2022.

Inflation – This has been kept at the same level of being priced into interest rates, but a larger factor in the increase of rates, along with the larger effect that prospective Tapering is having on the market. Inflation, whether measured by the price indices or the PCE deflator, has been running hot, above the 2.0% “average” that the Federal Reserve is targeting.