Search results for: fed funds rate

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Neutral funds rate going up?

The idea of low neutral funds rate has surprising currency, but could erode with more evidence of solid growth. We believe incoming information suggests the neutral funds rate would be moving higher, not lower.

Tagged with: Economy, U.S. Economy

Slack and Inflation

Low unemployment rate indicates modest slack in labor market. Decline in labor force participation now looks mostly structural.

Tagged with: Economy, Fixed Income, U.S. Economy

Gaps, not growth

Monetary policy is primarily about “gaps” not growth: the Fed is trying to reduce spare capacity in the economy, not bring about a rapid expansion per se. Despite concerns over cyclical weakness in labor force participation, the unemployment rate is sending similar signals as most other output gap proxies.

Tagged with: Economy, U.S. Economy

U.S. rates — Data dependence

Evidence of data dependency at the June FOMC meeting suggests policy will respond to unemployment and inflation surprises. We are more confident the Fed’s reaction function is (nearly) done moving.

Tagged with: Economy, Fixed Income, Investing, U.S. Economy

U.S. rates — Headwinds

At this week’s meeting, the Federal Open Market Committee looks likely to rework its forward guidance for short-term interest rates once again. We expect revised forward guidance to lean heavily on the idea of “headwinds”; this is a stand-in term for a low equilibrium real rate.

Tagged with: Economy, U.S. Economy

A creature is stirring

Last week’s news suggests that the center of the FOMC continues to see interest rate hikes in the middle of next year as most appropriate. December 17 looks like a natural time to begin signaling the possibility of rate hikes to financial markets—an eventuality for which bond investors do not look prepared.

Tagged with: Economy, Fixed Income

What investors should know about Fed forward guidance

The Fed’s communication for 2014 looks like the strongest type of forward guidance, one that clarifies the existing policy approach and backs up its statements. Current statements for 2015 and beyond are closer to the weakest type of forward guidance, which means they should be considered less credible.

Tagged with: Economy, Fixed Income, U.S. Economy

U.S. rates — An intriguing six point three

Fed and consensus unemployment forecasts are likely to come down after last week’s jobs report. It is not obvious what lower unemployment rate forecasts mean for U.S. monetary policy.

Tagged with: Fixed Income, Investing

Volatility and Goodhart’s Law

Markets are starting to make understandable inference that Fed officials see a fixed timeline for rate hikes. Implied volatility is low because perceived policy uncertainty is low.

Tagged with: Economy, U.S. Economy
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