LIVE MARKETS-The Fed is not behind the curve - Invesco
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Invesco says the Fed is not behind the curve
Long-dated US Treasury yields jumped after last week’s Fed policy meeting, as markets worried about the U.S. central bank falling behind the curve and being unable to tame inflation.
“To believe the Fed is behind the curve, you would need to believe the U.S. neutral policy rate is higher than the FOMC suggests,” Paul Jackson, global market strategist EMEA at Invesco, says.
Fed's own neutral rate estimate of about 3.1% suggests current policy (3.50%-3.75%) is restrictive. Jackson sees the neutral rate in the 3.50%-4.00% range and says that “Fed policy is neutral.”
The neutral rate, the benchmark for monetary policy, neither stimulates, nor restrains the economy.
Another way in which the Fed could be behind the curve is if inflation is above target and heading higher.
“The starting point for (Fed Chair) Kevin Warsh is an inflation rate that remains above target, though the trimmed mean PCE measure, that he has advocated, is closer to target at 2.2%,” he adds.
“Overall, inflation remains above target in most countries but there is no trend.”
