Bond Traders Schooled on Central Banking 101
Interest rates fall with inflation — it’s a basic law of monetary policy that’s sometimes forgotten in a market that likes to overanalyze the Fed.
Fed Governor Christopher Waller had a lesson for traders on Tuesday.
Photographer: Al Drago/Bloomberg via Getty Images
On Wall Street and in the financial media, many of us make our living by attempting to say “smart stuff” about the Federal Reserve. Unfortunately in some cases, that creates an incentive to make central banking out to be more complicated than it is. Oftentimes, it’s rather simple: if inflation falls, interest rates will come down too.
Here’s how Fed Governor Christopher Waller put it Tuesday in a question-and-answer session at the American Enterprise Institute — a response that coincided with an abrupt decline in bond yields (emphasis mine):