This is a tired argument. The Fed has very little credibility on forward guidance or forecasting to preserve. I can get behind guiding on the next 3 months but beyond that, the market is in charge, not the Fed. At a minimum, the FOMC must follow through on the forward guidance of federal funds rate increases and balance sheet reduction that we have already signaled My own estimate of neutral remains 2% Long-term real rates rather than short term ones influence demand for credit the most We will need to see whether the supply issues that have contributed to high inflation begin to unwind and/or if the economy is in a higher-pressure equilibrium This comments are in a Medium post. He perversely argues that Fed credibility on rate hikes has pushed up long-end rates when a much better argument is that long-end rates are running away because the Fed hasn’t done enough to anchor inflation expectations. He does assert though that long-term rates are now signaling neutral rates — or a return to his 2% fed funds target. Beyond that, “we will need to see whether the supply issues that have contributed to high inflation begin to unwind and/or if the economy is in a higher-pressure equilibrium.” He frets that China/Ukraine isn’t helping but that incoming data will be key.
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