This is a tired argument. The Fed has very little credibility on forward guidance or forecasting to preserve. I can get behind guiding on the next 3 months but beyond that, the market is in charge, not the Fed.
- At a minimum, the FOMC must follow through on the forward guidance of federal funds rate increases and balance sheet reduction that we have already signaled
- My own estimate of neutral remains 2%
- Long-term real rates rather than short term ones influence demand for credit the most
- We will need to see whether the supply issues that have contributed to high inflation begin to unwind and/or if the economy is in a higher-pressure equilibrium
This comments are in a Medium post. He perversely argues that Fed credibility on rate hikes has pushed up long-end rates when a much better argument is that long-end rates are running away because the Fed hasn't done enough to anchor inflation expectations.
He does assert though that long-term rates are now signaling neutral rates -- or a return to his 2% fed funds target. Beyond that, "we will need to see whether the supply issues that have contributed to high inflation begin to unwind and/or if the economy is in a higher-pressure equilibrium." He frets that China/Ukraine isn't helping but that incoming data will be key.
