ACGA’s Rate Setting & Regulations Committee continuously monitors interest rates to help ensure its Suggested Maximum Rate Schedule is appropriate for annuitants and issuing charities. This monitoring is especially important when economic and political circumstances contribute to increased market uncertainty. 

For months prior to the new Administration taking office in January, interest rate observers were largely focused on Fed activity—and specifically whether the Fed would continue to take rates lower as inflation appeared to subside. The thinking went that if inflation was under control, then the Fed could move to “normalize” rates to help ensure that employment remained strong. The hope was that a “neutral” rate range could be achieved that would allow the Fed to keep inflation near its two percent target while keeping the economy and job market healthy.

While this remains the case, market watchers are now beginning to focus not only on monetary policy as dictated by the Fed, but also on fiscal policy driven by the White House and Congress. Treasury Secretary Scott Bessent has stated that the Administration hopes to push down the 10-Year rate through what has been dubbed the “3-3-3” economic strategy. The approach aims to increase real GDP growth to 3% annually, decrease the annual budget deficit to 3% of GDP, and increase domestic oil production by 3 million barrels a day by 2028.

Markets tend to dislike uncertainty and in recent weeks they have been digesting both mixed economic data signals as well as the new policy signals from Washington. Since the beginning of the new year, the bond market has experienced a rally bringing yields down around 30 basis points from 4.65% on January 1, 2025. Some observers view this rally as having occurred for the “wrong” reason, namely owing to various economic concerns driving a “flight to safety” rather than a sanguine attitude about inflation lowering. 

This push/pull dynamic will likely continue until there is more clarity around emerging fiscal policy, including trade policy and tariffs, and we have a clearer picture on the overall health of the economy. Rates may continue to bump around in a range as data continues to emerge indicating whether recessionary fears are warranted or not—and whether inflation is truly under control. Given such an uncertain and evolving economic and market backdrop, ACGA’s Rate Setting & Regulations Committee will continue to closely watch the situation to ensure the Suggested Maximum Rate Schedule remains appropriate.