Are Fed Hikes in Trouble?

Fed dove Brainard pushes back against rate hikes

  • Says inflation well short of objective
  • Says should be cautious on rate hikes given long period of low inflation
  • Seems 1.4% PCE inflation is too low to hike for some Fed officials
  • Made all the worse by Friday’s wages disappointment
  • The pro-hikes crowd has some heavy lifting to do
  • More Important Than Ever to Get to 2% Inflation Target
  • Fed governor Lael Brainard points out in remarks in New York that the Federal Reserve’s moves to shrink its balance sheet “relatively soon” may put downward pressure on the so-called neutral rate of interest, by boosting the level of the term premium on the 10-year Treasury yield by an estimated 40 basis points or so over the first few years.

    “Typical rules of thumb suggest that such an increase in term premiums would imply a decrease in the short-run neutral rate of interest,” she notes. “To the extent that the neutral rate remains low relative to its historical value, there is a high premium on guiding inflation back up to target so as to retain space to buffer adverse shocks with conventional policy,” she says.

    Remarks courtesy of DowJones News

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    Dean Popplewell

    Dean Popplewell

    Vice-President of Market Analysis at MarketPulse
    Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
    Dean Popplewell