The Market's Line in the Sand
This note is going to be looking at the rates market and what it is telling us about the neutral rate and restrictiveness via a new methodology. I will outline my big picture views as to how the bond market may progress from here. Please note this note will be a continuation of a series of notes I have done on the topic, which you can peruse in the archive here:
The Case for Higher for Longer Interest Rates was a deep dive into structural forces like demographics as they intersect with an exceptionally strong cyclical situation.
Stimulus on Steroids explains why the cyclical backdrop remains exceptionally robust and highly insensitive to rates.
The Fed's Achilles Heel looks at term premiums, and why the lack of premium is what has led policy to be less restrictive than policymakers have expected.
Credit Conditions are the way monetary policy feeds into the economy, the so called long lags thesis, and why that isn’t impactful this cycle.
Measuring Restrictiveness is my analytical look at the neutral rate, and why it is likely much higher than the Fed projects.
The Loop is a deep dive into financial conditions and how they are the driver of sequential changes in the economy.