Snake Oil

Despite Jay Powell’s cautious words last week, US long-term yields were at the end of last week still close to 5%. Even if the Fed Chairman’s words triggered a downward revision of market pricing for Fed Funds for the remainder of this year, the long end of the curve seems to be increasingly detached from the expected short-term trajectory for monetary policy. The market may have taken on board the notion that the US neutral rate is now higher. This would reduce the capacity of the Fed to influence long-term yields.