The Federal Reserve, after raising overnight interest rates to “sufficiently restrictive” levels, has suggested its intent to leave them above 5% for as long as it takes to bring inflation down to its 2% target. Yet, fixed income markets continue to price rate cuts, up to 0.75% of cuts by the January meeting, signaling the Fed’s guidance lacks credibility. Fed policy makers have downplayed the likelihood of rate cuts this year, and the Fed’s own projections signal it’s likely on hold through the end of the year. Still, market pricing has persisted.
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Stephen Miran is an adjunct fellow at the Manhattan Institute, co-founder of asset manager Amberwave Partners, and a former senior adviser for economic policy at the U.S. Treasury, 2020–21.
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