Mohacsy's Safe Portfolio Member Forum

[jbsliverer]

"With Bullard just saying that the Fed Funds may have to rise to 5-7%..."

Some interesting remarks on that;

Did Bullard Undershoot? Stifel Economists Say Fed Funds Rate May Need to Go to 8% or Even 9%.
By Vivien Lou Chen, MarketWatch
Nov. 19, 2022 10:50 am ET
https://www.barrons.com/articles/inflation-fed-funds-rate-51668872977?refsec=economics&mod=topics_economics

....Investors took Bullard’s views with a grain of salt, though. The bond market stabilized, along with the dollar, early Friday until comments by a second Fed official, Susan Collins, triggered an afternoon selloff in government debt. Meanwhile, optimism returned to stocks, with all three major indexes finishing higher on Friday. Behind the scenes, some economists applauded Bullard for his honesty, while other analysts said his estimates weren’t as shocking as investors and traders believed. One of the most underappreciated risks in financial markets is that inflation fails to fall back to 2% fast enough to alleviate the need for more aggressive moves by the Fed, traders, money managers and economists told MarketWatch.

Stifel , Nicolaus & Co. economists Lindsey Piegza and Lauren Henderson said they think that even a 7% federal funds rate may be “understating” how high the Fed’s benchmark interest rate likely needs to go. Calculations show that there’s a possible need “for a federal funds rate potentially 100-200bps higher than [Bullard’s] suggested upper bound,” they wrote in a note. In other words, a federal funds rate that gets to between 8% and 9%, versus its current range of between 3.75% and 4%.

“The recent improvement in inflation pressures turning over from peak levels has seemingly in some ways blinded many investors as to the need for the Fed to aggressively continue along a pathway to higher rates,” they said. “While a 7.7% annual gain in the [consumer price index] is an improvement from the 8.2% annual pace reported prior, it is hardly anything to celebrate or a clear signal for the Fed to move to easier policy with a 2% target range still a distant accomplishment.”.......

.......As of Friday, fed-funds traders mostly expect the Fed’s main policy rate target to get to either between 4.75% and 5%, or between 5% and 5.25%, by the first half of next year. However, standard interpretations of the so-called Taylor Rule estimate suggest that the fed-funds rate should be around 10%, according to the UniCredit researchers. The Taylor Rule refers to the generally accepted rule of thumb used to determine where interest rates ought to be relative to the current state of the economy......

This article originally appeared on MarketWatch.
https://www.marketwatch.com/story/did-bullard-undershoot-some-analysts-say-fed-funds-rate-may-need-to-go-even-higher-than-7-11668795625?mod=home-page