A lot can change in a couple of years
August 30, 2022
–August 27, 2020…two years ago. The Fed released its new statement on Longer Run Goals:
- On price stability, the FOMC adjusted its strategy for achieving its longer-run inflation goal of 2 percent by noting that it “seeks to achieve inflation that averages 2 percent over time.” To this end, the revised statement states that “following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.”
- The updates to the strategy statement explicitly acknowledge the challenges for monetary policy posed by a persistently low interest rate environment. Here in the United States and around the world, monetary policy interest rates are more likely to be constrained by their effective lower-bound than in the past.
–Now it’s all about putting the inflation genie back in the bottle, running from one side of the ship to the other.
–Yields rose yesterday with tens +7.5 to 3.108. New high in EDU2/EDU3 at +47 bps (9659/9591.5). However, FFF3/FFF4 which is a rough proxy for expected Fed action next year is still negative at -21, FFF3 and SFRZ2 both settled at 9628.5, indicating a FF target around 3.75% by year end. FFV2 settled 9698.0, leaning a bit closer to 75 at the Sept 21 FOMC (9717 would be 50, 9692 would be 75). Bloomberg website highlights imminent QT in its lead headline this morning, but the market is ignoring the ramifications for now.
–JOLTS and Consumer Confidence today. NY Fed President Williams to comment in a moderated WSJ panel today.
