Opposite directions
Federal Reserve governors, who have raised interest rates eight times in the past year, will almost certainly do it again when they meet next week. Odds favor still another Fed rate hike later in the summer.
But there is a very different story developing overseas. Sweden's central bank cut its benchmark short-term interest rate to a record low on Tuesday. That helped fan speculation the European Central Bank will lower its interest rate target. Two policy makers at the Bank of England, including its chief economist, advocated privately this month for reduced interest rates.
If the conflicting messages from US and European central bankers represented a kind of interest rate tug of war, it's clear who had the upper hand yesterday. The yield on 10-year US Treasury notes fell below 4 percent again, following the lead of European bond markets to finish the day at 3.93 percent.
One more squirt of fuel on the fire: Bill Gross, the world's biggest bond mutual fund manager, predicted the Fed may begin cutting its rate targets by early next year.
A few simple facts go a long way to explain why American and European bankers appear headed in opposite directions. Most important, Europe is stuck with economies that are mostly in the tank or headed there fast. Lower rates may or may not help, but they are the standard response.
The American economy, though hardly booming, is performing much better. The Fed began boosting short-term rates from an extraordinarily low base, itself engineered by central bankers to assure plenty of liquidity in the wake of the stock market bubble's collapse and fears the terrorist attacks of Sept. 11, 2001, would sap market confidence.
The Fed has been viewed as slowly moving short-term interest rates back to more ''normal" levels ever since. But many investors and economists believe those normal rates are nearly here.
''They haven't overdone it yet, but I think there's a market view that suggests they should be very close to stopping here," says Ken Taubes, the director of fixed income at Pioneer Investments in Boston.
Relatively fragile economies everywhere and a world drowning in investable cash point to stable or slightly declining interest rates in the near future.
''We are living in a very low-return world," says Bill Kohli, director of the core fixed income team at Putnam Investments. ''There is a lot of capital chasing relatively little available return."
Last year, specialists warned that broadly rising interest rates would hurt the value of fixed-income investments (the value of holdings moves in the opposite direction of rates). That turned out to be wrong, but they said it would surely happen this year. Wrong again. You won't hear much of that talk now.
Low rates come with risks. They are the fuel that has overheated some real estate markets. They tempt investors to buy riskier investments without the kind of returns that would justify going out on that limb in the first place.
But there are limits to what Fed governors can control by raising short-term rates. The direction of mortgage interest rates is mostly a function of markets, not regulators.
Low interest rates are what happens when the world worries about soft economies and has too much money to put to work. They aren't going away.
The Red Herring
Executives of Cadence Capital Management LLC of Boston have bought back a controlling interest in their firm from Allianz Global Investors. Cadence Capital manages $6 billion for institutional clients.
Fairview Capital Investment Management of San Francisco says it plans to vote against the proposed acquisition of Saucony Inc. of Peabody by Stride Rite Corp. of Lexington for $170 million. Fairview, which says it owns 2.6 percent of Saucony's stock, complains the price is too low.
Steven Syre is a Globe columnist. He can be reached at syre@globe.com. 