Will the Fed keep interest rates “higher for longer?”

Source: The Hill
by Vivekanand Jayakumar

“Over the past year, the Federal Reserve has encountered difficulties convincing financial markets of its intention to sustain a tight monetary policy until the battle against inflation is well and truly won. Bond markets have, in fact, frequently ignored warnings from the central bank, as investors have repeatedly bought into the narrative that the Fed would pivot and change course. To bring annual inflation back down to 2 percent, the Fed has raised what is known as the federal funds rate by 500-basis points since March 2022. Despite this, unemployment has fallen from 3.6 percent to 3.4 percent over the same period. Moreover, even as short-dated T-bills have largely tracked the federal funds rate, the yields on longer-dated T-notes and T-bonds have declined lately. Furthermore, the stock market has risen considerably from its October 2022 lows.” (05/16/23)