In terms of my measure of inversion, it hasn't budged, and when inversion has happened in the past, it has always been uninverted by lowering short term rates, not by sitting tight while long term rates rise. That doesn't mean it would be impossible. My hunch is that we are still more likely to see an eventual contraction, where the Fed will hold to the current rate target for too long as conditions deteriorate.
It still seems like the best position is to be somewhat defensive - that the next big asset class move will be higher bond prices.
But, there does seem to be a change in the air. Can positive sentiment be strong enough to push savers into risk-taking and push long term yields up while the Fed stays put?
Pimco posits the Fed is trapped and knows it cannot raise rates anymore.
ReplyDeleteHence talk of inflation overshoot.
Richard Clarida may be positive influence.
Still, no one seems to be advocating a couple generations of 3% inflation, help keep labor markets tight.
Wait and see.
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