In a bid to predict what Federal Reserve boss Jerome Powell is thinking, traders are considering whether there has been an increase in the neutral rate, also known as R*.
, with investors wondering if Federal Reserve Chair Jerome Powell will weigh in, and bracing for further declines in US Treasuries if he does.
So any hint at an upward revision would likely ripple across global markets, forcing a reevaluation on where. An added complication: The level of rates that are best for an economy may not be the best for markets, risking disruptions in the financial system. Federal Reserve chairman Jerome Powell and then-Bank of England governor Mark Carney at Jackson Hole in 2019.Despite the market chatter, many Fed watchers reckon Powell will dodge the topic when he speaks Friday. He told lawmakers in March, “Honestly, we don’t know” where neutral is. In his first Jackson Hole speech as Fed chair, in 2018, he emphasised the inherent uncertainty around estimates of such long-run variables.
And using the history of past changes as a guide, “it would be difficult to conclude with certainty the chair would make an aggressive statement on this topic on Friday, even though the risk may lean in this direction.” Another potential concrete indicator is orders for Treasury inflation-protected securities. An auction for 30-year TIPS on Thursday demonstrated middling demand. The debt was sold at a rate above where the when-issued security was trading just before bidding completed, a sign of lackluster appetite, though there were more bids compared with the amount of debt issued this time than at the prior auction in February.
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