Groupama Asset Management says Warsh’s Fed strategy could reduce rate volatility
TLT•Groupama Asset Management says a shift toward strategic rate-setting could reduce short-term interest-rate volatility and potentially lower long-term volatility. The approach could hold rates at neutral while underlying trends justify it, but its credibility remains unproven.
1. Strategic rate-setting
Groupama Asset Management says the Federal Reserve could reduce short-term interest-rate volatility by holding policy rates at neutral while underlying trends justify it, rather than reacting to each economic release. The approach could potentially lower long-term rate volatility and make monetary policy subordinate to fiscal policy, incorporating government debt refinancing into the Fed’s reaction function. Its credibility remains unproven, and markets are expected to test the Fed’s crisis response, when rapid intervention and unconventional tools could be needed.
