Bank Julius Baer predicts extended high interest rates based on US Fed's data driven decisions

The US Federal Reserve relies on data, and if the data continues to show unexpectedly strong performance, it can be reasonably inferred that interest rates will likely remain elevated until at least the middle or even the latter part of the upcoming year.

In an interview with CNBC-TV18, Mark Matthews of Bank Julius Baer & Co said that interest rates are poised to remain at higher levels well into the upcoming year. Matthews pointed out that the US central bank's decisions are significantly influenced by economic data, and if the data continues to exhibit remarkable strength, it's reasonable to anticipate a sustained period of elevated interest rates.

He further added that the increase in bond yields from 3.8 to 4.2 percent in the past month, along with the strengthening of the dollar, can be attributed to the robustness of the US economy. Unless there are indications of the economy slowing down, the market's perspective will progressively lean towards the expectation that interest rates will remain elevated throughout the following year.

“The Fed is data dependent and if the data does remain so surprisingly robust then it is safe to assume that rates won’t come down until well into the middle or even second half of next year,” Matthews said.

“The strength of the US economy is why bond yields have risen from 3.8 to 4.2 percent over the last 30 days and the dollar has strengthened and until we see signs of the economy ebbing, the market will increasingly take the view that the rates are going to stay high well into the next year,” he added.

Matthews also touched upon the short-term prospects of the market. He suggested that the market might experience a period of range-bound movement. “The volumes are thin in the market because many people are still away, the results are largely behind us and on an average, companies beat expectations. We can see that the market was nonplussed with that because going into the results, expectations were very low and I just do not see many catalysts going forward and by summing it all up, short-term, we are more likely to drift than go up,” he said.

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