Where are U.S. interest rates going next? Nowhere but up, according to the Wells Fargo & Co. conference call on Wednesday. In answer to an analyst’s question, the bank’s top management explained that it believes in keeping lots of cash on hand rather than jumping into the fixed-income market at today’s low yields. It expects better rates to emerge soon, when the Federal Reserve stops buying mortgage-backed securities and thus driving down mortgage interest rates. “I think when rates move up, they are going to move at some speed,” said John Stumpf, Wells Fargo’s CEO.
This is interesting on a number of levels. It seems to suggest that other banks are making a mistake by moving more aggressively into fixed income investments. It also raises questions about the U.S. housing market. If Wells Fargo is right and mortgage rates are going to shoot up, it seems likely that the still vulnerable U.S. housing market is going to endure yet more pain over the year ahead. This does not bode well for a strong recovery.
Freelance business journalist Ian McGugan blogs for the Financial Post.