Support Pullquote, upgrade to Pro!
(Or just tweet your Pullquote for free!)
With Pullquote Pro, you'll get to:
- share on Facebook
- schedule tweets
- tweet from multiple accounts
- edit quotes
- customize colors
- change fonts
- save and index quotes
- private quotes
Choose a plan: $5/month $50/year (includes free access to any new features)
Recent quotes:
Morning Must-Read: Cardiff Garcia: The Maddening Bond-Market Conundrum-Redux Conundrum - Washington Center for Equitable Growth
(2) The Fed responds to a new conundrum by tightening policy, following Dudley’s prescription and raising policy rates more quickly. To target the curve more directly, the Fed might also start selling down its longer-dated holdings. What would happen?
One possibility is that inflation expectations would fall, with the market interpreting the move as a willingness by the Fed not to tolerate the higher path of economic growth and inflation that lower long-term rates might lead to. The curve would actually flatten even more, perhaps enough even to offset the Fed’s direct involvement in the Treasury market.
Another possibility is that the market would interpret the move as a new commitment by the Fed to follow a higher path for its policy rates. If long-term rates do indeed reflect the expected path of short-term rates, then these long-term rates could rise in tandem with the Fed’s action. The curve would thus steepen, and the steepening would be reinforced by the Fed’s direct involvement in the Treasury market.
You see what I did there….
Have a nice day.