2.) In terms of when that is likely to happen, look for unemployment to drop down closer to 7%. It will probably take a further drop to around 6.5% before the Fed is likely to start raising interest rates.
3.) Given the speed at which the unemployment rate is dropping, we’re probably looking at the back half of 2013, at the earliest, before we’re likely to see an end to the Fed’s asset purchases, and even longer before short-term rates are likely to rise.
Bottom line — unless we start to see the US economy producing at least 200-250k jobs a month, the unemployment rate is likely to fall very slowly. That means that the Fed will likely keep rates low and further expand its balance sheet for the foreseeable future.
For investors who need income in this environment, we would continue to advocate equities and credit, rather than duration.
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock.