Monday, March 24, 2014

Fed's forward guidance

 Macro Intelligence 2 Partners is no fan of the Fed's forward guidance and fears the strategy could fuel a "meltdown" in the front end of the bond market "that would be both vicious and ultimately damaging to the Fed's credibility." Firm thinks forward guidance is "a con trip, which only works if markets can be persuaded to act like a frog in boiling water, accepting artificially low rates in the face of higher inflation and growth." Mi2 thinks the unemployment rate "will continue to fall far faster than the Fed's forecasts," and "trend in wages has decisively turned" higher. "Are we really meant to assume that Fed officials will be willing to stick with Janet's plan for slow rate hikes in this environment?"