Bond Markets Bedevil Fed by Actually Easing Financial Conditions
- Ebbing long-term and real yields call for higher policy rate
- Market pricing in Fed rate peak near 3.6%, followed by cuts
The Marriner S. Eccles Federal Reserve building in Washington, D.C.
Photographer: Andrew Harrer/BloombergThis article is for subscribers only.
The bond market isn’t doing the Federal Reserve any favors.
While the US central bank is trying to bring inflation to heel with increases in its policy rate, overall financial conditions have stopped getting tighter -- an outcome that’s at cross-purposes with what the Fed is looking to achieve. Declines in long-term interest rates in anticipation of an economic slowdown are loosening conditions both directly, through lower borrowing costs, and indirectly by stoking riskier markets like equities.