Oppenheimer & Co. strategist raises neutral US rate expectation by 50 basis points.

Dowling Securities said that a higher nominal neutral interest rate is likely to keep US Treasury yields elevated for a longer period of time, with the 10-year Treasury yield fluctuating between 4.25% and 4.66% in the short term. "We now believe that the range for the US nominal neutral interest rate is 3.25%-3.50%, 50 basis points higher than our previous estimate," strategists like Oscar Munoz stated. "The continued resilience of US households, substantial investment demand from artificial intelligence construction, and favorable financial conditions suggest that the current monetary policy stance is at best close to neutral." Dowling Securities also pointed out that despite a soft US labor market, service sector inflation remains strong, indicating that policy may not yet be restrictive enough. The hawkish stance of the Federal Reserve will continue to push the US Treasury yield curve flatter, while a higher neutral rate implies that the US dollar will remain in a "robust trading range".