Fed: Likely to raise rates regardless of inflation concerns – BBH

FXStreet(Delhi) – Research Team at BBH, suggest that they expect the US Fed to raise rates regardless of what happens to the market-based measures of inflation expectations in the coming months.

Key Quotes

“The Federal Reserve threw investors a curve ball last week. Until then, Fed officials have shown a clear preference for survey-based measures of inflation expectations. Last week, seemingly out of the blue that Fed made reference to market-based measures of inflation expectations. It implied that the decline in the break-evens (difference between conventional and inflation-linked bond yields) got officials’ attention.”

“The San Fran Fed’s economists compare market-based measures (break evens and inflation swap rates) with surveys of professionals (the Fed conducts a Survey of Professional Forecasters and the Blue Chip Financial Forecasts) and methods including an unchanged forecast and a forecast that assumes the Fed inflation target is reached.”

“Political considerations suggested that a domestic reason be given for the hesitancy. The lack of substantial progress on the price stability mandate was readily available. The Fed overstated its case by citing market-based measures of inflation expectations. And the San Fran Fed economists called it out.”

Research Team at BBH, suggest that they expect the US Fed to raise rates regardless of what happens to the market-based measures of inflation expectations in the coming months.

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