January 08, 2025 at 01:35PM
Long-term yields may have more of an inflation premium but Fed will fix that
US deficits may also be driving long-term yields higher
Some of ongoing services price inflation may represent lagged wage increases, which should ease
Tremendous uncertainty around what will happen with tariffs
Do not think ‘draconian’ tariffs will be implemented
In the near-term do not think there will be a huge impact on inflation from tariffs
Until Trump policies are clear, it will be hard for markets and the Fed to assess the next year
Return to the lower bound does not seem likely any time soon
Current rate are restrictive, though not tight enough to cause a recession
The labor market is not behaving like an economy that’s overheating
Waller is getting a bit wide of his lane here but it’s useful to highlight the Fed’s thinking.
This article was written by Adam Button at www.forexlive.com.