Authers says investors don’t see Fed policy as restrictive

Bloomberg/John Authers/6-29-2023

“For the time being, however, investors don’t seem to think that these higher rates will inflict an economic downturn. One explanation would be that the economy is resilient. A perhaps more plausible one is that investors still don’t buy that Fed policy is that restrictive.”

USAGOLD note: In our view, the Powell strategy is reminiscent of the 1970s wherein the lending rate rose but never enough to keep a lid on inflation until Paul Volcker became chairman of the Fed in 1979. As you can see in the chart below, the Fed pushed the Fed funds rate below the core PCE Index in the aftermath of the 2008 financial crisis, and excepting the small blip higher in 2019, has pretty much kept it there since.

Fed Funds Rate and Core PCE Index

Chart courtesy of Trading View.com • • • Click to enlarge