Rick Rieder of Blackrock says we are in a “polyurethane” economy of resiliency, and it’s not as sensitive to interest rates as it used to be. 

We are a 70% consumption and 70% services economy which is more resilient to recession.  Additionally, people have locked in mortgages, and the big spenders in the economy – tech- are not big borrowers.   So Mr. Rieder thinks that in one year the 10-year will migrate lower to 3 – 3.25% due to lower inflation, and the Fed will lower rates next year boosting equities.  He also thinks the increasingly large national debt service costs will eat up fiscal spend, so the Fed will be forced to lower rates to help with the deficit.

The assessment that the economy is more resilient seems to be true so far.  However, if the economy is resilient to rate hikes, why would the Fed lower rates?  Wouldn’t they be more likely to raise them to clear the excess mal investment, and leave room for stimulus later?  I also find a more comfortable home in Jamie Dimon’s preparedness for higher rates on the 10-year, because if the Fed doesn’t control the 10-year rate, and there will be a large outward shift on the supply curve of Treasuries, won’t the price of the Treasuries go down thereby increasing the yield?