Market Overview Analysis by Michael Ashton covering: . Read Michael Ashton's latest article on Investing.com
As the steadier measures of inflation have started to overshoot expectations slightly – the y/y measures continue to decline, but slower than expected as the m/m numbers have surprised on the high side – the markets have continued to price Fed policy becoming increasingly easier over the course of 2024 and into 2025.
Unfortunately, under that rule the Fed has little if any chance of meeting its mandate. It would have a better chance of hitting 2% in…um…let’s say a ‘transitory’ way, as rental inflation swings lower and we pass close to the target briefly before inflation goes back up to its new equilibrium level.I noted that the Fed was already above the FAIT projected from the announcement of that policy, and in fact had used up all of the post-GFC slack. Obviously, it has gotten worse since then.
Note that the inflation swap market is not indicating any expectation that prices will return back to the trendline. The market is acting as if the Fed is still operating under the old rules, where the goal was to get inflation to be stable at 2%, wherever “here” is. This means one of four things will have to happen, or it implies a fifth thing.
The Fed can keep the original base, but concede that the actual target now is 3% , which means that if the inflation market is right then it should be back on target by late 2029 ; or
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