Brief analysis

The Fed has raised the overnight cost of money
enough that further hikes will push up long-term rates. Federal Reserve
Chairman Alan Greenspan’s “conundrum” ? short rates rising while long ones
steadied ? turns out to be no riddle at all, just an illusion. Short
rates were extremely low ? at 1 percent so low that the Fed’s
nine-month-long, 1.5 percent hike had no impact on long
rates.

…For a while this winter,
the closing gap between short and long rates looked like a classic warning of
economic slowdown: all recessions are preceded by such a narrowing gap. Most
are preceded (some say all) by an “inversion,” in which the Fed tightens late in
a tightening cycle, and longer rates fall below the Fed’s rate.

From an Inman story
today
– Keep it simple: the Fed is coming.
The Fed has raised the overnight cost of money enough that further hikes will
push up long-term rates. Federal Reserve Chairman Alan Greenspan’s “conundrum”
? short rates rising while long ones steadied ? turns out to be no
riddle at all, just an illusion. Short rates were extremely low ? at 1
percent so low that the Fed’s nine-month-long, 1.5 percent hike had no impact on
long rates. Hikes to come will have
impact.

For a while this
winter, the closing gap between short and long rates looked like a classic
warning of economic slowdown: all recessions are preceded by such a narrowing
gap. Most are preceded (some say all) by an “inversion,” in which the Fed
tightens late in a tightening cycle, and longer rates fall below the Fed’s rate.
If the Fed tightens another percent or two, and long rates stick or decline,
then we will have a slowdown indicator. This past episode was more mirage than
conundrum.

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