Powell's 'restrictive' emphasis maximizes Fed flexibility: McGeever
ORLANDO, Florida -Central bankers choose their words carefully, so recent comments from the Federal Reserve's two most senior policymakers that U.S. monetary policy could stay"restrictive" rather than"higher" for longer should not be overlooked.
The drum beat for no rate cuts at all this year is getting louder, so much so that talk of a possible rate hike is now swirling in financial markets.And it is significant that he and his number two stressed policy might stay"restrictive" for longer as opposed to the more oft-used 'higher for longer' phraseology.
Discussion around interest rates staying"higher for longer", on the other hand, increases the emphasis on the nominal fed funds rate and turns the debate over the policy outlook into a more rigid, less nuanced, black-and-white call on the numerical level of interest rates. The economy's resilience right now - as seen in GDP growth rates, the labor market and consumer spending - may be casting doubt on the Fed's longer term projections and assumptions, and in turn, how 'restrictive' its current policy stance actually is."That would be very difficult. We would need to see a complete unhinging of inflation expectations," said Joe Kalish, chief global macro strategist at Ned Davis Research.
Five-year inflation breakeven rates, meanwhile, are up to 2.6%, the highest in a year, and the 10-year equivalent is up to 2.4%.
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