Why the Fed Might Want to Jolt the Markets
by Neil Irwin
January s4, 2022
https://www.axios.com/fed-markets-jolt- ... 55f58.html
Introduction:
(Axios) So far, financial markets are cooperating nicely with the Federal Reserve's efforts to restrain inflation. They're doing the Fed's work for it by creating tighter financial conditions, in a distinctly non-panicky way.
Why it matters: The Fed likes to move gradually to avoid spooking markets. But if its leaders conclude they are as behind the curve on re-setting monetary policy as some believe, it could mean more abrupt moves with far-reaching consequences.
- But as the central bank's policymakers meet this week, an underlying question they face is whether the adjustment is happening too slowly.
By the numbers: Since the Fed's hawkish pivot began in mid-November, market moves have been consistent with the central bank's goals of achieving tighter financial conditions in an orderly way.
- Bond yields have risen substantially, but not because investors expect higher inflation. Rather, inflation-adjusted rates are rising. The real yield on 10-year Treasuries has risen 58 basis points since November 9.