Fed is trying to normalize its balance sheet, not use it to tightening financial conditionsFed does watch carefully what part of the 10-year yield appears driven by inflationThe jury is still out on how recent labor settlements will impact overall wagesUncertainty is one of the reasons to be gradual and cautious about declaring victory over inflationFed will have to feel its way to neutral, depends on if inflation seems to be settling or not
The problem is that you never really know what’s driving the bond market. You can US TIPS to some extent but it’s not a perfect science.
This article was written by Adam Button at www.forexlive.com.
