Conventional wisdom says, we are finally facing the real countdown to the Fed’s first interest rate increase
Tthe threshold for where interest rates risk pushing the US economy into recession has been falling over the last thirty years
This pattern reflects lower trend growth and rising leverage — both of which tend to reduce the ‘neutral’ policy rate
The peak in the real Fed funds rate required to trigger recession will likely make a new low. 1% real could cripple growth. Worse, if the peak in rates is so low, it will leave the Fed little room to battle the next downturn
The Worst Case Scenario For The Bond Market
We’ve seen unemployment come down pretty dramatically, there is some concern that the Fed may be behind the curve on inflation, But what I think the Fed is really watching is the wage inflation number.
We’ve seen unemployment come down pretty dramatically, there is some concern that the Fed may be behind the curve on inflation. So if you look at wage inflation now, Janet Yellen thinks 3-4% is a normal range, so if you start to see that wage inflation pick up, that’s what’s really going to drive up consumer prices very quickly, and the Fed’s going to act quickly