The FOMC or the Market?

James Bullard just gave a presentation in China: “Slow Normalization or No Normalization?”. The conclusion:

  • The FOMC median projection for the policy rate suggests a gradual pace of rate increases over the next several years.
  • The market-based expectation for the FOMC policy rate is much shallower, implying only a few increases over the forecast horizon—almost no normalization.
  • US. evidence from labor markets, actual inflation readings and global influences suggests the FOMC median projection may be more nearly correct.
  • US. evidence from recent readings on GDP growth and market-based inflation expectations suggests the market view of the path of the policy rate may be more nearly correct.

Ladies & Gentlemen, place your bets!

PS Note how monetary policy has been downgraded to establishing a “normal” level of the FF rate. And by “devine coincidence” that “normal” level will provide the “target” rate of inflation. It´s a double “reasoning from a price change”!

3 thoughts on “The FOMC or the Market?

  1. I’d say it might even be triple reasoning. Until 2008, the Fed funds rate (a price) was a function of supply and demand. Now they just set the price directly via IOR. Maybe they’re now reasoning “to” a price change too!?!

  2. I wouldn’t have been so kind to Mr. Bullard who starts to crow about rate hikes every time headline CPI lurches toward 2%, because of course headline CPI will rise as oil prices recover from the earlier plunge, while that particular measure isn’t the official target in addition to not being an indicator of a general rise in the price level. The PCE core index is showing 0.9% increase yoy though April, more than 50% below the official target. The FOMC still has a very long way to go to hit it.

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