Yesterday we noted the fact that Biotech stock investors has 'fought the Fed' and won (for now) [4] in the last few months after Janet Yellen's "stretched valuations" warning. With bond yields continuing to collapse, despite Bullard's ongoing demand that the market 'sell sell sell' [5], we thought a glimpse at just how dovish the market is compared to the 'hawkish' Fed would be useful...
FOMC 'demanding' the market take them seriously...
[6]
But the FOMC even admitted previously that it over-estimated rate rise pace [7]...
[8]
"nailed it"
But, despite all the exuberance over stocks, jobs, and growth, the 'real' easiness of the Fed remains at record levels...
[9]
An alternative measure - a “shadow” policy rate developed by Jing Cynthia Wu and Fan Dora Xia - captures the combined impact of the Fed’s conventional and unconventional policies into a single indicator that estimates just how easy Fed policy has been in terms of Fed Funds rate equivalents.
Estimates suggest that the U.S. shadow policy rate has declined sharply in the postcrisis recovery period, and is now in negative territory to the tune of -3%. In theory, this is where the Fed Funds rate should be trading if not constrained by the ZLB.
* * *
We suspect that red line will stop falling pretty soon... or The Fed needs another (war?) excuse
Charts: Bloomberg and BofA
