Rise Above Rates

PIMCO’s Outlook for Rates

Even amid a tighter policy environment, interest rates should remain historically low in the years ahead.

PIMCO core fixed income product manager David Fisher explains PIMCO’s outlook for where interest rates are headed over the next three to five years.

One of the key concepts associated with PIMCO’s New Neutral outlook is that we expect the average level of interest rates across the yield curve to be lower in the future than it has been in the past.

  • For the Fed Funds rate, we expect that the neutral level - meaning the level that is neither tight nor easy - is somewhere in the 2.0%-2.5% range. This is significantly lower than in previous cycles.
  • Over the next couple of years, we think the Fed is going to raise rates towards that level. However, since they are not looking to put the brakes on the U.S. economy, we think they’re going to do so at a very gradual pace.
  • If we look further out the curve, we would expect that a neutral level for the 10-year Treasury yield is about 100 basis points higher than the neutral level for Fed Funds – somewhere in the 3.0%-3.5% range.
  • Lower inflation and slower economic growth should enable this historically low interest rate environment.

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Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fees, and/or other costs. In addition, references to future results should not be construed as an estimate or promise of results that a client portfolio may achieve.

This material contains the current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark or registered trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. THE NEW NEUTRAL and YOUR GLOBAL INVESTMENT AUTHORITY are trademarks or registered trademarks of Pacific Investment Management Company LLC in the United States and throughout the world. ©2015 PIMCO